Interest from Savings Accounts ?

montycat_2

Hi,(I hope this the right place to post this )
When is interest from Savings accounts considered Income .I have a largeish amount in a savings account and its due to pay a substantial amount of interest .If it stays in the Savings Account and I don't spend it -is this considered as Income or savings .
I am asking because at the moment I have an income under £13,900 so I get free prescriptions etc.but if the interest from this account is considered Income then ,I will lose this benefit and Childrens Tax Credit .
This money came from Insurances paid out after my Husbands Death .

tanith

Someone with more knowledge than me will be along I am sure but the interest from your savings is classed as income as far as I can gather, there may be some sort of limit to amount of savings you are allowed also when calculating Child tax credits............ have u taken that into account...?

Steve_xx

montycat wrote:

Hi,(I hope this the right place to post this )
When is interest from Savings accounts considered Income .I have a largeish amount in a savings account and its due to pay a substantial amount of interest .If it stays in the Savings Account and I don't spend it -is this considered as Income or savings .
I am asking because at the moment I have an income under £13,900 so I get free prescriptions etc.but if the interest from this account is considered Income then ,I will lose this benefit and Childrens Tax Credit .
This money came from Insurances paid out after my Husbands Death .

All of the interest from a savings account is considered as income for tax purposes and you must add the interest gained to your other sources of income in order to arrive at the correct amount payable to the Inland Revenue. On a bank account, tax is usually deducted before the interest is paid to you unless you have requested otherwise. The only exception to this would be income derived from an ISA, which the inland revenue ignores anyway. However, though the Inland Revenue ignores this for tax purposes, you should understand that any income you have from interest paid to you from savings should be declared if you are making claims for means tested benefits.

Milarky

In addition to cash held in ISAs and the first £300 of (gross) annual interest being ignored as 'income' for tax credit purposes, any 'tax free' form of saving is also exempted. That would include premium bonds and fixed interest and index-linked savings accounts from National Savings. The rates are relatively low, even allowing for being tax free but the amounts you can set aside into these is significant compared to the annual ISA amounts.

Another - but less flexible - option is with a 'CITR' account (a government backed scheme) In return for leaving your money with them for five years, you get an annual 5 percent of the amount deposited but as a tax refund - not as income. It works against any income tax you pay either as a result of employment or unearned (eg interest) income. Because you don't recieve the benefit as 'income' it can't be counted for tax credit purposes. In effect, another source of 'tax free' income from savings.

Depending on how much you have to play with some or all of these options may be helpful (I'd start with the cash ISAs first). You could seek out an IFA's advice on this - and they should be able to handle the intricacies of tax credit rules even though they are quite recent.

Good luck

Quietgirl

Hello,

I have been reading through this thread and I wondered if someone could possibly clarify a point for me. A person who gets working and child tax credits can have savings, but interest over £300 has to be declared to the Inland Revenue. Am I understanding this right that if you have an ISA and the interest would be over £300 would you still have to tell them the amount over the £300.

What about a childs savings?

Thanks