Charity Bank article discussion area

lipidicman

Perhaps that the interest on the CITRA would rise if there was a 2.4% rise in the base rates (base rates at 7.15%, I wish!)

Has anyone done the sums accounting for the fact that the tax relief is not reinvested into the account - therefore you dont benefit from compounding - so what is the effective AER for the account?

I guess you can invest the interest elsewhere at 5%+ and help it allong a little, but still it makes a difference

MarkyMarkD

lipidicman wrote:

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!

If you speak nicely to your tax office, they will modify your tax code to reflect anything you ask for - if it sounds reasonable! So if you expect to get relief on this scheme for 5 years, they would definitely give it through PAYE. Similarly, if you declare that you will make charitable payments in future years (and you pay 40% tax), they'll knock the marginal relief off your tax code straight away.

You get the relief annually, so AER is a red herring, surely.

MarkyMarkD

hammodt wrote:

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

No, it's tax relief which is offset against taxable income. If you haven't got any, you can't get any.

If you want to do this scheme, do it in your taxpaying partner's name, surely?

lipidicman

MarkyMarkD wrote:

If you speak nicely to your tax office, they will modify your tax code to reflect anything you ask for - if it sounds reasonable! So if you expect to get relief on this scheme for 5 years, they would definitely give it through PAYE. Similarly, if you declare that you will make charitable payments in future years (and you pay 40% tax), they'll knock the marginal relief off your tax code straight away.

You get the relief annually, so AER is a red herring, surely.

I cant even get my tax office to send out a 'notification of tax' to use as ID so I wouldnt hold out any hope of this working. I will investigate though, it sounds like a nice idea! with that and my pension, my tax payments would look pretty small to my less savvy friends!

tunneller_2

I am no mathematician but the headline that started this all off says:
Earn over 10% a year in a savings account.
On £5000 simple interest comes to £500 pa and £2500 over 5 years, way above what is quoted: "Put £5,000 in there and a basic rate taxpayer would’ve gained £1,660 in combined interest and tax relief, and a higher rate taxpayer £1,560; nearly twice as much as the top savings account."
So where does the 10% feature or was it just an "eye grabbing headline?":rolleyes:

steady__eddie

I was initially under the same impression as you tuneller but this, which I found in the small print may throw some light on the problem

In fact, to be able to pay returns which compete with CITRA, a normal savings account would need to pay a basic rate taxpayer 8.25% and a higher rate taxpayer 10.3%, which no provider comes close to.



Perhaps this is part of this weeks brainteaser ?

Macman_2

Would appreciate clarification on the tax situation.

If I open an account before 5 April 05 with say £35000, I would declare this on my 04/05 tax return and if I was a higher rate tax payer I would get £1750 tax relief even though that £35000 had not directly earnt any interest from the CITRA?

If in a few years time I stopped working and my only income was £15000 interest on savings (but still retaining the CITRA), would I still get £1750 tax relief from the CITRA against my interest on savings?

Many thanks, this may be the ideal product for me.

joffmeister

Macman wrote:

Would appreciate clarification on the tax situation.

If I open an account before 5 April 05 with say £35000, I would declare this on my 04/05 tax return and if I was a higher rate tax payer I would get £1750 tax relief even though that £35000 had not directly earnt any interest from the CITRA?

If in a few years time I stopped working and my only income was £15000 interest on savings (but still retaining the CITRA), would I still get £1750 tax relief from the CITRA against my interest on savings?

Many thanks, this may be the ideal product for me.

As I understand it - and this does not constitute financial advice! - the answers to your questions are:

a) Yes, you can claim the tax relief in the 04/05 tax year even if you haven't earnt any interest. This is because the tax relief is not linked to the interest, but to the investment.

b) You can claim tax relief only up to a maximum of the income tax you pay in that financial year - I haven't done the sums to work out whether that would be the full £1750 on income of £15000 in your example, but you could work it out. One possibility is that you could invest less than the £35000 so that you're sure to get the full tax relief available in the later years. Alternatively you can withdraw 25% of the original sum in each of the 4th and 5th years - this would reduce the tax relief available, but if you're constrained by how much tax you've paid then that would be okay.

Hope this makes sense - happy to clarify anything that I've explained poorly.

cheers
joff

Macman_2

joffmeister, Makes sense, thank you.

avhation

Assuming that inflation will rise as Government spending rises during the next few years, even 10% could become a mediocre rate in 3-5 years. Also, the tax relief presumeably does not take effect until the tax code is adjusted in the year following the initial deposit. Therefore, I wonder what the AER would be for terms of 3,4 and 5 years?