Charity Bank

aidem_2

Any views on the Charity Bank CITR scheme accounts for 5 years. Looks a great interest rate.

johnllew

Link

What are Just Interest accounts ?
They are 5 year fixed term deposit accounts with Charity Bank where the depositor receives tax relief against UK income or corporation tax but donates the interest earned by the deposit to a chosen charity.
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Why?
There are many charities and other community organisations that work in disadvantaged communities. Some are able to tap into new forms of finance such as loans. Others do not have sufficiently certain income streams to be sure they can repay loans. By donating your interest to these organisations you enable them to access additional funds that they can use for their core activities. Each pound of interest donated may not seem much but every £1 million of deposits means £20,000 for the charity every year.

MarkyMarkD

There is more than one scheme on offer.

The basic CITR involves the taxpayer receiving a return of up to 9.53% (8.33% in tax relief and 60% of 2% in interest) a year for 5 years.

The scheme John quoted involves the taxpayer receiving the 8.33% in tax relief, but donating the interest to charity.

Both sets of figures above apply to 40% taxpayers.

I hadn't heard about this scheme, but on the basis of the particulars referred to, it sounds very good. It is a long-term commitment, though: nothing can be withdrawn for 3 years, and only limited amounts in years 4 and 5. And anything withdrawn no longer receives tax relief (unsurprisingly) but doesn't affect the amounts received to date.

So, if you have already used up your full ISA allowance, this is another way of getting a good return which is effectively tax-free (or at least, similar to the gross level of interest you would receive on a cash ISA).

Milarky

Can you help me here, I'm a bit unsteady with the concept:

Example
An individual makes a £10,000 deposit in a Charity Bank CITRA or Just Interest account on 1st June 2004. The amount for each tax year for which relief may be claimed is £10,000.
Tax relief of £500 (5% of £10,000) may be claimed for the tax year 2004/5 (the tax year in which the deposit was made) and for each of the four subsequent tax years; £2500 in total.

From this I read that the government gives 'tax relief' at 5% of the deposit [not compunded] for five years It appears the benefit of this tax relief can be drawn down therefore each year. The obvious question to me is "who gets the 5 percent"? I assume it must be the charitybank who, in addition to getting an interest-free loan, also pockets this money.

Mention of "8.33%" however [5% plus 40% relief] implies the value to the donor of this gift. In other words, to fund this amount of gifting out of their own resources, the higher rate taxpayer would need to be getting a return of 8.33% from savings which simply can't be got any else at the moment.

[For the basic rate taxpayer - 22% income tax, 20% savings tax - they would need 6.25% gross interest from somewhere else to match the value of the gift]

Have I got this right?

Thanks in advance

MarkyMarkD

Milarky

Yes, you've got it right.

The taxpayer gets tax relief of 5% of the amount they deposit in the scheme, each year (for 5 years).

That's equivalent to a gross return of 8.33% taxed at 40%.

And the investor also receives up to 2% gross interest (which is taxable - so 1.2% for the 40% taxpayer). Hence my 9.53%.