Charity Bank article discussion area

isasmurf

ED wrote:

Anyone here know if the 5% Tax Relief against Income Tax applies just as much for a person without a job but whose building society accounts automatically have a substantial collective sum of tax @ 20% deducted annually?

You claim it back against any tax paid. Unless you fill in a tax return you'd probably have to go down the claiming it back route though.

MarkyMarkD

nitejar wrote:

I've read the article and the discussion and I get the idea of the charity account.

I'm a basic rate tax payer so could get the tax relief, but if I put £1000 or more in the account, I probably wouldn't use all my £3000 mini cash ISA allowance in 2005/6.

So I actually need to compare with the best ISA rates. The Abbey postal seems best at 5.35%, no fee to transfer [A&L £25] or short term fix [Firstdirect] and interest rates may drift up over the next 5 years.

If I take the 8.25% qoted as the effective rate for a basic rate tax payer, less 20% to allow for the tax a basic rate rax payer would pay, but I wouldn't if I used the ISA, I get an answer of an effective rate of 6.6%, which compares well with my ISA.

Have I worked this out right?

No, the effective rate for a basic rate taxpayer is NOT 6.6%.

On their website it states that it's 6.41%. (that's 5% / 78%).

You are misunderstanding the "effective rate" thing and double counting the benefit.

The CITR gives a tax-free return of 5%; your ISA gives a tax-free return of 5.35%. The CITR gives an EFFECTIVE return of 6.41%; your ISA gives an effective return of 6.86%.

There's no way I could recommend the CITR to anyone unless they've used up their ISA allowance and intend to do so in full in all future years. This is a long-term investment with limited flexibility. And the return isn't so marvellous that it makes a good ISA substitute IMHO.

ED

Perhaps another potential pitfall is that if inflation causes a rise in interest Base Rate, whereas presumably the 2% gross rate on CITRA + 5% Tax Relief on Income Tax are unlikely to change, competitors' accounts will rise. So CITRA depositors may regret not instead saving elsewhere.

stec00

deemy2004 wrote:

2% ?

Getting 2.7% with tridos.co.uk

Sounds interesting, do you mean the Charity Saver account? Does this account have the 5% tax relief + ability to pay it into your own account?

Tracyk_2

If you could get a 5 year fixed rate for less than this is paying - should I top up my mortgage and invest it here?

hammodt

Hi,

What about if your partner is the main income earner, and therefore you don't personally pay income tax? Would you simply get an income tax rebate? ie. £50 in cash?

David

Reaper

Tracyk wrote:

If you could get a 5 year fixed rate for less than this is paying - should I top up my mortgage and invest it here?

Fixed rate mortgages invariably have "arrangement fees". Take these and any other charges into account when calculating whether it is worthwhile.

Nil_Desperandum

Interesting, not seen this before.

It's probably not for me becasue nor others with the flexibility of a sweeper mortgage. In effect you get your mortgage rate tax free - so for me, currently 5.75% tax free (equivalent to 9.58% at the higher rate) and no lock in nor forms etc.

But, nice spot Martin!

lipidicman

I currently dont have to fill in a tax return - would this investment mean that I would need to and would I have to do it every year? I guess they cant change your tax code to modify your PAYG - that would be brilliant!

ED

2.40% rise in Base Rate over the 5-year period would, I think, wipe out advantages of CITRA (anyone here need to correct me?)

5.85% is offered by monthly savings account of Derbyshire Bdg Soc
+ 2.40% if Base Rate rises are matched by the Society in 5-yr period

---

= 8.25% gross interest

Compare with :

8.25% effective gross equivalent via CITRA (5% Tax Relief + 1.60% NET of tax for Basic Rate taxpayers)

Or am I missing something? Keen to learn from you guys, so I can make a decision about whether to take up CITRA, or instead stick with Martin Lewis's 'Savings Fountain' principle.