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Where Taxpayers and Advisers Meet

Self Assessment - Tax Treatment for Fixed Deposit Expected Profit Rate

skray
Posts:51
Joined:Mon Oct 29, 2012 5:01 pm
Self Assessment - Tax Treatment for Fixed Deposit Expected Profit Rate

Postby skray » Sun Sep 05, 2021 7:55 am

Hi

Habib Bank Offering Fixed Deposit 12 MONTH 1.00%EPR*, where EPR is Expected Profit Rate. FSCS protection available.
https://www.habibbank.com/uk/home/ebondsSirat.html?aff=mcuks

This looks like a Sharia Compliant Product that cannot pay a guaranteed interest, but can pay a "profit" which is not guaranteed.
The capital seems to be protected. There does not seem to be any restriction who can invest.

I would like to ask when filing Self Assessment should the profit be declared as interest (where you have to pay tax in full) or capital gains (where you do not have to pay tax up to Capital Gains tax-free allowance)

Regards

T&C from the bank's website:
1)It is important to note that the Expected Profit Rates are indicative only and the profit amount that you will receive will be based on the actual performance of the investment activities.

2)if the investment activities achieved an Actual Profit Rate that is equal to, or higher than, the Expected Profit Rate agreed with you, the selected Beneficiary will receive the Actual Profit capped at the Expected Profit, while we will be entitled to retain any profit amount exceeding the Expected Profit as an incentive for our good performance or
if the investment activities achieve an Actual Profit Rate that is less than the Expected Profit Rate agreed with you, the selected Beneficiary will receive the Actual Profit which, in this case, will be less than the Expected Profit anticipated by you, while we will receive nothing.

3)If we believe that the Expected Profit Rate might no longer be achievable, we shall inform you and may offer you a revised (lower) Expected Profit Rate. In such case, you will have the option to either accept the revised Expected Profit Rate or request the termination of the Account where you shall become entitled to receive the deposited funds and any profit accrued up to the termination date. If we reasonably believe, at any point of time, that the deposited funds are at risk of being lost, we will close the Account immediately by returning the full Deposit amount, together with accrued but unpaid profit to your nominated account. If your Deposit returns a loss, we shall, as per the UK banking regulations, offer to compensate you for any losses you have suffered by returning your Deposit to you in full. You are entitled to accept or refuse this offer from us.....

4)It is your responsibility to ensure that tax is paid on any profit received exceeding your Personal Savings Allowance to which you are entitled. Please contact the HMRC directly at www.hmrc.gov.uk if you need more information on tax or tax exemptions

iwmtaxadvisor
Posts:42
Joined:Wed Sep 09, 2020 5:12 pm
Contact:

Re: Self Assessment - Tax Treatment for Fixed Deposit Expected Profit Rate

Postby iwmtaxadvisor » Sun Sep 05, 2021 8:18 am

At first sight, this looks like alternative finance return, so taxed as interest.

[HMRC] "For non-corporate investors, ITA07/S564M provides that for the purposes of ITTOIA 2005, alternative finance return is treated as if it were interest." You'll have to ask Habib Bank how they put this issue together, because there are a couple of ways this is possible under Islamic Law, (see https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2250).
Robert Noble-Warren CTA, FCIS
wealth updates for high net worth families

skray
Posts:51
Joined:Mon Oct 29, 2012 5:01 pm

Re: Self Assessment - Tax Treatment for Fixed Deposit Expected Profit Rate

Postby skray » Sun Sep 05, 2021 10:33 am

Hi iwmtaxadvisor

Thanks for your response. I did send Habib Bank an email with my query on tax treatment - no response so far.
My curiosity was partly academic - to what does FSCS protection apply. If technically this is investment in share then capital may not be FSCS protected.
If it is alternative finance return like you say then I might find better rates elsewhere.

Regards

robbob
Posts:3221
Joined:Wed Aug 06, 2008 4:01 pm

Re: Self Assessment - Tax Treatment for Fixed Deposit Expected Profit Rate

Postby robbob » Mon Sep 06, 2021 9:45 am

My curiosity was partly academic - to what does FSCS protection apply.
provider should be able to confirm this - surely ? (not shirley :) )


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