PwC Warns Of Tax Consequences Of Negative Interests Rates In UK

by Robert Lee, Tax-News.com, London

07 January 2009

With a cut in interest rates anticipated on Thursday, and the prospect of savings rates falling below zero, PricewaterhouseCoopers suggests that HM Revenue and Customs (HMRC) may be able to help taxpayers who are adversely affected by low interest rates.

Leonie Kerswill, tax partner, PricewaterhouseCoopers LLP, said:

“Savers face tough and uncertain times. Many taxpayers want to save against even rainier days and will want to do so in savings accounts, even with interest rates as low as they are at present."

“If interest rates fall below zero, taxpayers may end up paying their bank or building society to look after their money. Under current rules, individuals affected will not get a tax deduction for this negative interest – even if a deduction might seem to be a logical mirror image of being taxed on interest. There's an element of tails you lose and heads you lose too."

"To help some of the taxpayers adversely affected by low interest rates, HMRC could use the information it has to do more to match taxpayer records and identify those who have paid too much tax on savings in previous years. This would help people on low incomes, particularly pensioners.”

The Bank of England cut its base rate to a 57-year low of 2% last month, and another deep cut is expected when the Monetary Policy Committee meets on January 8.

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