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Charity Bank

Did anyone see the article on the Charity Bank in last week's Sunday Times claiming nearly double digit interest rates from a savings account with

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.

It seems to me that the writer has got it very wrong !!.

The basic account pays up to 2% gross but Community Investment Tax Releif (CIRT) may be claimed on 5% of the sum invested.

As I see it this means that no tax is payable on that amount and this is therefore equivalent to additional income of 22% or 40% of the 5%. - i.e a notional additional interest rate of 1.1% or 2% net. ( 1.4% or 3.3%).

The point is that the 5% is not itself additional income from the account - it is taxable income from elsewhere.

This makes the account interest rate only 3.4% or 5.3% gross - hardly the

6.4% or 10.3% quoted in the article.

Is this correct or have I misunderstood tax relief.?

Alan

Reply to
Alan
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Nope.

Example: X is a higher rate tax-payer, i.e. he has some other income taxed at

40%. Now he invests £10,000 in a CITR account. He gets a) 2% -> £200 before tax -> £120 after tax b) 5% tax relief -> £500 off his tax burden.

--> his gain after tax : £620.

To achieve a net gain of £620 from £10,000 using a "normal" savings account, he would have to get an interest rate of 10.33%: £10,000 @ 10.33% -> £1033 before tax, £620 after 40% tax

Reply to
Elizabeth Smith

"Elizabeth Smith" wrote

Is that 5% received every year? And if so, is it always 5% of the initial investment, or is it 5% of it's (hopefully increasing!) value each year??

Reply to
Tim

5% every year. You can choose whether the 2% are added to the account or paid by cheque or to an accont of your choosing. If you add it to the account, good question, 5% of what then? I have a feeling it's always 5% of the originally deposited amount. In which case it would be better to have the interest paid into a high interest savings a/c.

Of course, this scheme is only any use if you are sure that you will have income for the next five yrs.

ES

Reply to
Elizabeth Smith

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