Benefits - Saving interest tax

hiipower

Hi

I have been helping someone out with disability benefits to manage and budget money better. They are now saving looking to save for the future. I know you can't have more that £6000 pounds without it affecting your benefits. As he is just starting it is not a issue. I also know you can earn £1000 tax free with interest.

My question is if he gets to a point he can stick some money into a fixed saver bond or he can do a regular saver will the interest cause him issues? Is that a income that will mess with his benefits? Say he could earn £40 interest (just for this). If not how does that work would he declare it or is that took care off by the bank. What about stocks ISA via robo Moneybox? Is that a no no?

I don't want to give wrong advice and mess his benefits up.

Thanks.

Dazed_and_confused

Forget the £1,000, it doesn't apply to people with low taxable income (which I expect your friend probably has).

If any taxable benefits are less than the Personal Allowance of £11,850 (and there is no wages/pension etc) then any unused Personal Allowance is available for the interest then there is £5,000 interest which can be taxed at 0% and only after that does the £1,000 come into play (also taxed at 0%, not "tax free").

Someone more knowledgeable on benefits will no doubt comment about that in due course.

NeilCr

What benefits are they actually getting?

You mention disability benefits. If they are getting DLA or PIP receipt of these benefits is not affected by income or capital.

calcotti

For DWP means tested benefits (old style ESA or UC for example) the interest earned on savings is ignored. Interest earned is simply treated as an addition to capital and will be taken into account when calculating whether there should be any reduction in benefit due to capital.

So if claimant has £6,000 in capital there is no reduction in benefit. If after 12 months £70 of interest is added the capital is now £6,070. Because this is now over £6,000 the DWP will deduct £1/week from the benefit award. (the calculation is £1/week for every £250, or part thereof, over £6,000).

Whether or not the interest is or has been subject to income tax has no bearing on benefits.

As noted above DLA and PIP are not means tested so capital, income, interest etc have no impact on the benefit payable. This is also true for contribution based or new style ESA or JSA.

For Tax Credits it is different. For Tax Credits actual interest earned has to be reported and is taken into account.

hiipower

They get ESA and PIP. Thank you for the information. So say he made £30 interest I now know it is fine but does that need to be declared to tax or benefit people (would that be sorted by bank anyway tax wise)? or because it is under the said amounts it is fine?

Also he wants to try out Moneybox app (his choice and I explained it is risky) to throw in a small amount when he can but also to round up his money (app feature) to invest. So from what I can gather this is a robo that he wants to invest in isa shares and stuff. I don't know if he will go ahead with that but is that treated the same way as info posted above? We are talking about small amounts. Maybe not worth his while compared to the saver accounts but he got really into this stuff and wants to dip his toe in if he can save anything after getting a emergency fund saved.

Thanks again!

Dazed_and_confused

Unless they have taxable income of £17,850 or more then it is unlikely any tax would actually be due so HMRC aren't interested (and they get this information about interest direct from the banks now anyway).

calcotti

hiipower wrote: »

So say he made £30 interest I now know it is fine but does that need to be declared to tax or benefit people

For benefits you really only need to report changes when you cross thresholds which would affect benefits so for working age benefits you should report increases when you cross over £6,000 and every £250 thereafter (£6,250, £6,500, £6,750 etc.). Bear in mind that capital is money in savings accounts, value of stocks and shares and money sitting in current account. People often forget this last. If the current account has money in and out every month and on average has a nil balance then it can be ignored but many people, if they are able, keep a buffer in the current account and this should be included in the calculation of capital (without getting too otbsessive about it!).