Unpaid tax on savings interest

[Givemethenight]

Cousin is 57 and has been living off savings interest after he inherited quite a lot of money some years ago. He's an alcoholic and his house is a tip. (This last sentence is relevant).

He is always opening and closing accounts (ISAs, easy access and yearly bonds) to get the best interest rate. He currently has around 15 different accounts. He showed me piles of screwed up, soaking wet paperwork which he claims is his filing system for last year's finances! Apparently his central heating is leaking and the paperwork was on the floor underneath the radiator. When I enquired where the paperwork was for the other years he said he hadn't a clue.

He mentioned something about not having paid any tax on his accounts for the last few years as banks no longer tax interest and it was HMRC's responsibility now. He seems to think if there's any tax to pay HMRC will write to him and he will pay then.

Do HMRC know how much he owes them and can they tell him? Don't know what advice to give him.

Yes, the banks and building societies inform the HMRC and they will write to your Cousin to let him know how much tax is due. He can then either pay a lump sum, or else they adjust his tax code and collect the money from his income

Thanks so much for your reply. He reckons he definitely has had no correspondence from HMRC at all. He has about £900K in savings, much of this was inherited about 5 or 6 years ago so maybe because the interest rates have been so low over the past years perhaps he wasn't earning enough interest to pay tax on it . I might be completely wrong.

Wish there was an edit button.

Sorry, that should read - He has about £900K in savings, much of this was inherited about 2 or 3 years ago ......

He could well be within his allowance if he's living off his interest and has no other income. HMRC will contact him if necessary. There is a special savings allowance which helps and interest rates are pants at the moment.

the time for doing all that money shifting is past, and with interest rates at 1% if you are lucky he will be under his personal allowance, so no tax to pay.

while this doesn't have to be your problem - someone in that state, with that much money, living alone will be a magnet for the cuckoo drug dealers. They could well take the lot. He needs to be on someone's radar before he is on theirs.

I would talk to him about getting the money working more efficiently for him. He could probably get a better rate than 1% by investing it in some sort of income fund. A financial advisor could help?

Make sure he's got enough credits for his state pension too if he's not working.

I would still contact HMRC to ask for a breakdown of the interest he has received for the past few tax years.

1. It might help track down any forgotten accounts
2. HMRC do get it wrong as they rely on information fed to them by the banks, which also assumes the banks get it right. If he is shuffling money about there may come a time he is taxed incorrectly as HMRC might assume some closed accounts will pay interest. Tbh the system for untaxed interest is not fit for purpose.

He shouldn't need to pay tax - he will have the personal allowance, the starting rate for savings and also his personal savings allowance.

Also consider a personal pension - he can put in £2880 per year which is topped up to £3600.