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HMRC internal manual

Tax Credits Manual

From
HM Revenue & Customs
Updated
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Eligibility - income (other than earnings): Income - investments (Info)

Investment income is

  • any interest of money

    • whether yearly or otherwise

    or

    • any annuity or other annual payment, whether it’s payable within or out of the UK, either as a charge on any property of a person paying it by virtue of any deed or will or otherwise, or as a reservation out of it

    or

    • as a personal debt of obligation by virtue of any contract

    or

    • whether the payment is received and payable half yearly or at any shorter or longer period, but not including property income.
  • any discounts on securities.
  • any income from securities payable out of public revenues of the UK or Northern Ireland.
  • dividends and other distributions of a company resident in the UK and the accompanying tax credits.
  • gains from life insurance policies and so on that are chargeable to income tax under Chapter 9 of Part 4 of ITTOIA 2005, but disregarding top slicing relief under Section 535 of ITTOIA.

When calculating investment income disregard the following in full

  • any income arising from savings certificates and interest on tax reserve certificates exempted from tax by Sections 693, 693 and 750 of ITTOIA 2005
  • the first £70 in any tax year of interest on deposits with National Savings and Investments, exempted from income tax by Section 91 of ITTOIA 2005

and

  • any payment to a customer that doesn’t form part of his income for the purposes of income by virtue of Section 727 of ITTOIA 2005

and disregard the following

  • any interest, dividends distributions, profits or gains from

    • a Personal Equity Plan (PEP)
    • an Individual Savings Account (ISA)
  • any terminal bonus, or interest or other sum payable under a share option scheme which is a certified contractual savings scheme
  • any winnings from betting, including pool betting, lotteries or games with prizes
  • any interest on a payment of £10,000 made by the Secretary of State to a person who was a prisoner of war of the Japanese during the Second World War or to their spouse if the payment is held in a distinct account and no payment, apart from the interest, has been added to it
  • any interest on a payment of compensation to a victim of National Socialism (that is, a former slave or forced labourer) if the payment is held in a distinct account and no payment, apart from the interest, has been added to the account
  • any compensation received by the customer and paid into their bank or building society account for unclaimed interest on an account held by a holocaust victim and is treated as exempt from income tax by virtue of Extra Statutory Concession A100
  • any interest or payment in respect of interest which is disregarded for income tax purposes by virtue of

    • Section 751 of ITTOIA 2005 (interest or damages for personal injury)

    or

    • Section 731 of ITTOIA 2005 (personal injury damages in the form of periodical payments)
  • annuity payments under an award of compensation made under the Criminal Injuries Compensation Scheme within the meaning of Section 329 AB(2) ICTA 1988 (a payment under a life annuity arising for example, from a ‘home income’ plan)

Note: The disregard is limited to the amount of the annuity which is equal to the interest which qualifies for tax relief.

  • any interest or payment in respect of interest which is compensation to a person who is under the age of 18 for the death of one or both of their parents
  • any amount received under health or employment insurance policies to which Section 735 of ITTOIA 2005 applies

Payments in connection with very severe disablement, Creutzfeldt-Jakob disease and haemophilia

Description of income to be disregarded

  1. A trust payment made to a diagnosed person, the diagnosed person’s partner or, the person who was his partner at the date of his death.

The period beginning on the date on which the trust payment is made, and ending with the death of the person to whom the payment is made.

  1. A trust payment made to a parent of a deceased diagnosed person, or a person acting in the place of his parent.

The period beginning on the date on which the trust payment is made and ending two years after that date.

  1. The amount of any payment out of the estate of a person to whom a trust payment has been made, which is made to the person who was the diagnosed person’s partner at the date of his death.

The period beginning on the date on which the payment is made and ending on the date on which that person dies

  1. The amount of any payment out of the estate of a person to whom a trust payment has been made, which is made to a parent of a deceased diagnosed person, or a person acting in the place of his parent.

The period beginning on the date on which the payment is made and ending two years after that date.

The amounts disregarded under items 3 and 4 above shouldn’t exceed the total amount of any trust payments made to the person to whom the trust payment had been made.

Vaccine damage payments

Vaccine damages are paid as tax-free lump sums under the Vaccine Damages Act 1979. They are paid to people who are severely disabled as a result of vaccination against certain diseases. Once paid, it is up to the recipient (or whoever is acting on their behalf) what they do with the money. Some may put it into a trust fund, others may invest the money in another way, for example to produce an annuity.

It’s likely that a claim will be made by the child’s parents. If that is the case, the vaccine damage trust income that is income of the child should be disregarded from the assessment of the parents’ joint income.

If that child has grown up and is making a claim to tax credits in his or her own right, any continuing income from the vaccine damage trust must be declared in the tax credits claim form. This is because there is no income tax exemption for income from a vaccine damage trust and no disregard of such income in the Tax Credits (Definition & Calculation of Income) Regulations 2002.