Are students exempt from paying tax?

tkane

Hi, I'm currently in my 1st year of uni and am researching the best savings accounts to put my student loans/grants into. I have at least £5000 left which I can save and this is obviously above the current £3000 ISA limit. I was on the Inland Revenue's website just a moment ago and came across the form "R85". According to its helpsheet, I should in theory be exempt from paying the 20% tax on any interest received from a normal savings accounts. I don't have a job so I don't actually have an income other than all my loans, and the helpsheet actually says that student loans are not taken into account.

Now, I've decided to open up the Barclays 6.5% ISA before the 5th of April and put in the whole £3000. However, this still leaves me with £2000 and also, I'll be receing new loans from September too....meaning that I'll potentially need to stick £7000 in a normal savings account in the next few months.

So, I was wondering whether anyone could confirm that I would be able to use the "R85" form and be exempt from having to pay the 20% tax normally levied on normal savings accounts?

Here's a link to the form I'm going on about:

http://www.hmrc.gov.uk/forms/r85.pdf

Any help would be highly appreciated :beer:

oldfella

if yo earn less than around £5200pa, you should pay no tax

cookie9

If you earn below the single persons allowance (SPA) then you will not pay tax on your savings. This is not automatic so you must lodge the appropriate forms with your bank/building society.
If you are a student and only working during the summer holidays then you are unlikely to earn above the SPA. You will also be able to claim back over paid tax on the income earned durng the holidays.

tkane

cookie9 wrote: »

If you earn below the single persons allowance (SPA) then you will not pay tax on your savings. This is not automatic so you must lodge the appropriate forms with your bank/building society.
If you are a student and only working during the summer holidays then you are unlikely to earn above the SPA. You will also be able to claim back over paid tax on the income earned durng the holidays.

Thanks for the responses.

Just to clarify one thing....if I don't earn over the SPA, does that mean I can save as much as I like without having to pay tax? Or is there a limit? Cos then I could save all of my parents' savings too right?

Oldernotwiser

Only up unto a maximum of the SPA and only if they're daft enough to let you. They'd have to gift you the money outright for it to count as your money!

amcluesent

>Or is there a limit?<

The limit would be when the interest income exceeds the allowance and/or the investment gains incur a CGT liability.

You parents can give you money but it would need to be recorded for inheritance tax purposes if above the annual allowance gift allowance and the person giving the gift was to die within 7 years. The taxman would be prowling about if he suspected it was a 'gift with reservation'.

CLAPTON

just to be clear

you could put 3000 into barclays ISA right now and a further amount on or after 6th april i.e. next (2207-8) years ISA allowance.
Remember that this high rate only lasts a year so you will almost certainly need to move it next year. If you dont want to keep moving things about you're better finding an account that while not giving the best rate is fairly consistent.


if your total earned income plus interest plus dividend (but excluding any grants or student loans ) is less than SPA then you need pay no tax.

so when you open a saving account, ask for a R85 from the bank/B Soc and fill it in (you probably need your NI number for this).

If you already have savings a/c that are not paying gross you can send them a R85.
However if you have already had tax deducted you need to get a R40 from the tax office to reclaim the tax.

Lastly, if you get a temp job in the summer, there is a special concession from the tax man that your employer is allowed to pay you gross without tax deducted on the basis that your total income will not exceed the SPA.

tkane

amcluesent wrote: »

The limit would be when the interest income exceeds the allowance and/or the investment gains incur a CGT liability.

Thanks again for the responses. So if the SPA is £5,035 (Just looked it up on the IR's website)...I can save up to when the amount I save derives interest totalling £5,035...makes sense now! Which means I could save quite a bit until I would have to start paying tax. However, I don't understand what the CGT liability is!?!? Could someone please explain this to me?

tkane

CLAPTON wrote: »

just to be clear

Thanks a lot....very clear! I'll probably go for the Barlcays ISA tomorrow and then after the 6th (new financial year) I'll put in another 2000 odd in another ISA. But as I said, I'll be receving more loans/grants so will have to opt for a normal savings accounts since it would ecxeed the ISA allowance.

CLAPTON

don't know if you intend to do a mathematical based subject at uni but just in case you aren't maths minded

then to get 5035 per annum in interest at say 6% you would need over 83,000 invested (and that excludes the ISA money which is outside the calculation).

you have no liabilty to either CGT or inheritance tax.

However, if your parents decided to give you 83,000 and they had to sell shares to raise the money then maybe they would have to pay CGT depending upon the circumstances.

tkane

CLAPTON wrote: »

don't know if you intend to do a mathematical based subject at uni but just in case you aren't maths minded

then to get 5035 per annum in interest at say 6% you would need over 83,000 invested (and that excludes the ISA money which is outside the calculation).

you have no liabilty to either CGT or inheritance tax.

However, if your parents decided to give you 83,000 and they had to sell shares to raise the money then maybe they would have to pay CGT depending upon the circumstances.

lol thanks for that I do Economics at UCL....so VERY mathematical. I don't think I'll be saving anywhere near £83,000 just yet (even with my parents' savings since they mainly invest in properties). Thanks again :T