# Charity Bank

A

#### Alan

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
www.charitybank.org .

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

E

#### Elizabeth Smith

Alan said:
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
www.charitybank.org .

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

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

T

#### Tim

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.
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??

E

#### Elizabeth Smith

Tim said:
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??
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