ISAs usually best if you are on Child Tax Credits

PN

If you are on Child Tax Credits and have any savings, it's generally best to use ISAs.

A 3% ISA rate beats a 5% non-ISA rate if your income exceeds £17,005 in 2022-23.

Savings income is all assessable income for a Child Tax Credits claim  - it's different from the Income Tax Rules which give a Personal Savings Allowance of £1,000 to most savers.

If your income exceeds £17,005 then your Child Tax Credit award is reduced by 41p for every extra £1 of income.

ALL savings income counts for Child Tax Credits purposes - there is NO concession on the first £1,000.

So if you are on Child Tax Credits and are choosing between a 5% non-ISA savings rate, and an ISA rate of 3%, choose the 3%!

Why?

Saving £100 at 5% gives £5 per year, BUT each £1 of non-ISA savings income over £17,005 reduces the benefit by 41p. So it's worth £2.05 less (5 times 41p) , i.e. £2.95 (£5 less £2.05).

That's 5p less than the 3% ISA rate which is worth £3 per year.

I'm not a benefits expert - just stuff I picked up helping a friend who needs every penny. So please comment if I have got anything wrong, or missed something.


Useful sources on Which.co.uk and www.gov.uk (search on tax credits).

Dazed_and_C0nfused

I think you've missed a key aspect of Tax Credits.

The first £300 of certain income types (including taxable interest) can be ignored.

https://www.gov.uk/guidance/tax-credits-working-out-income

And with income tax non ISA interest is all taxable although some may be covered by your Personal Allowance or either of the 0% tax rates applicable to interest.

calcotti

PN said:

ALL savings income counts for Child Tax Credits purposes 

That isn’t correct. The first £300 of interest/investment income is ignored.
https://www.gov.uk/guidance/tax-credits-working-out-income

PN

Thanks calcotti and Dazed_and_C0nfused. Much appreciated.

Went back to look at friend's claim (with his permission!).

He recently retired. Pension income treated as Other Income, so first £300 of that ignored.

Non-ISA Income would all count, as £300 used up. Hence using ISAs.

Is it worth me revising this?

Obviously not relevant to most Tax Credit claimants, but maybe useful to older parents etc if they have already used up £300 on pension income etc.

Want to help others, but don't want to confuse!

calcotti

PN said:

Obviously not relevant to most Tax Credit claimants, but maybe useful to older parents etc if they have already used up £300 on pension income etc.

Lots of people could be getting more than £300 of interest at current rates so what you've said is relevant. At the moment ISA rates are close to match non ISA savings too.

Of course this will all soon be irrelevant - Tax Credits should have ended by the end of next year (but of course they may not!),

Dazed_and_C0nfused

To be honest I'm surprised that pension income can be included in the £300 disregard!

Spoonie_Turtle

Dazed_and_C0nfused said:

To be honest I'm surprised that pension income can be included in the £300 disregard!

I'm not very familiar with Tax Credits but I've always seen it said on here that the first X amount of interest on savings was disregarded (i.e. savings/capital don't affect it unless interest was over the disregard).  Never seen anything about pensions being disregarded for TC.

calcotti

Spoonie_Turtle said:

Dazed_and_C0nfused said:

To be honest I'm surprised that pension income can be included in the £300 disregard!

I'm not very familiar with Tax Credits but I've always seen it said on here that the first X amount of interest on savings was disregarded (i.e. savings/capital don't affect it unless interest was over the disregard).  Never seen anything about pensions being disregarded for TC.

It’s included under Other Income in the link I posted earlier (I was surprised to see it there too).
Here it is again
https://www.gov.uk/guidance/tax-credits-working-out-income

Spoonie_Turtle

calcotti said:

Spoonie_Turtle said:

Dazed_and_C0nfused said:

To be honest I'm surprised that pension income can be included in the £300 disregard!

I'm not very familiar with Tax Credits but I've always seen it said on here that the first X amount of interest on savings was disregarded (i.e. savings/capital don't affect it unless interest was over the disregard).  Never seen anything about pensions being disregarded for TC.

It’s included under Other Income in the link I posted earlier (I was surprised to see it there too).
Here it is again
https://www.gov.uk/guidance/tax-credits-working-out-income

Thanks, I forgot about the link.  Wow, good to know for sure.