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Wednesday, 3 October 2023

Money, tax and benefits

Money, tax and benefits

Other income - how to work it out for your tax credits claim

When the Tax Credit Office works out your tax credits payments, they look at your income for the last tax year. A tax year runs from 6 April one year to 5 April the next. As well as what you earn by working you'll have to give details of other income. If you’re claiming as a couple it is your joint other income that counts.

What you should include as other income

You should include the following types of other income – but only if the total was more than £300:

  • income from your savings before tax is taken off
  • investments, such as company dividends
  • pensions
  • income from property
  • income from trusts, settlements and estates
  • foreign income
  • notional income, for example, where income is available to you but you have not taken it

For example, if your total other income from any of these added together was £421, only include £121 (£421 less £300).

There are exceptions to this rule though. For the following types of other income you should include the full amount – don’t deduct £300:

  • the Adult Dependants' Grant paid to you if you are a student
  • any dependants' grant paid to you if you’re a student in Scotland
  • miscellaneous income that is taxable

For help working out your other income, use the worksheet in the notes that came with your tax credits claim form or renewal pack. Or you can call the Tax Credit Helpline.

Income from savings and investments

You need to include interest from your bank or building society accounts. You can find this information on interest statements or your passbook.

Also enter income from UK company dividends, including dividends from a company of which you and/or your partner are directors. If you received UK company dividends, you should add the tax credit - shown on the dividend voucher supplied by the company - to the dividend.

You should also include any chargeable event gains from a life insurance policy, for example from the sale of an investment bond. The amount of the gain will be shown on the certificate issued by your insurer.

Pensions

You will need to enter the amount of any State Pension, including:

  • basic or old-age pension
  • social security pension lump sums
  • State Earnings Related Pensions (SERPS)
  • Graduated Pension (Graduated Retirement Benefit)
  • Industrial Death Benefit
  • Widow's Pension
  • Widowed Mother's Allowance
  • Widowed Parent's Allowance

You should also include:

  • any increase for a dependent child
  • any incapacity addition or addition for a dependent adult
  • any increases paid to uprate a guaranteed minimum pension

If you receive an occupational or personal pension, you will need to give the full amount before any tax was taken off. You can find this information on your P60 or other certificates of pension paid. Also include any annuity payments from a pension scheme.

If your pension includes an extra amount for a work-related illness or injury, call the Tax Credit Helpline.

Property income

Include income from property in the UK that you own or rent. Don't include:

  • income that's covered by the Rent a Room scheme
  • property income that you've included as part of your self-employed income

If your rental property made a loss, you can use a working sheet to help you work out what to enter.

Income from trusts, settlements and estates

You might have received income from a trust, settlement or the estate of someone who has died. If so, the trustees or administrators will have given you a certificate telling you what income was paid to you. This will either be form R185 (Trust) or form R185 (Estate). Include the gross amount - the amount before any tax was taken off.

Foreign income

This may, for example, be income from investments and property overseas or social security payments from overseas governments. You should include the full amount, whether or not it came into the UK. You should include the gross amount - the amount before any tax was taken off - even if it is not taxable in the UK. Give the amount in British pounds, not the foreign currency.

If you receive a foreign pension, whether or not it came into the UK, you should include 90 per cent of the full amount. You should include the amount in British pounds, not the foreign currency.

You may take off any banking charge or commission paid when converting foreign currency into British pounds.

To convert foreign income into British pounds, use the average exchange rate for the year the income relates to. So, if the income relates to 6 April 2023 to 5 April 2012, use the average exchange rate for the year ended 31 March 2012.

If you need any help, you can contact the Tax Credit Helpline.

Notional income

Notional income is income that you're treated as having which you may not in fact have. Include:

  • trust income that under Income Tax rules is treated as the income of another person - for example, investment income of a minor child, where trust funds have been provided by you and the amount exceeds £100
  • income that you did not take so you could get tax credits or more tax credits
  • income that you were entitled to, but did not apply for - for example, a social security benefit, or allowances paid to local government councillors or civic dignitaries
  • employment income you could have had - because you worked for free, or for less than the going rate, when you could have been paid more

This does not apply to:

  • a deferred State Pension, although when it is paid, a social security pension lump sum or an enhanced state pension will count as pension income for tax credit purposes
  • a trust arising from a payment as a result of a personal injury
  • a personal pension scheme or retirement annuity contract
  • compensation for personal injury which is administered by the Court
  • income you didn’t get because the work you were doing was voluntary - for example, helping out in a charity shop or Citizens Advice Bureau, or employment or training programmes

Also include capital that's treated as income. For example, if you hold shares in a UK company, and they give you new shares (a stock dividend) instead of a cash dividend.

For help working out notional income, you can contact the Tax Credit Helpline.

Adult Dependants' Grant

Include all money you received for the Adult Dependants' Grant - regardless of whether the amount was over or under £300. The Adult Dependants' Grant is paid to students with a partner or a dependent adult.

Dependants' grants for students in Scotland

Include all money you received for any child or adult dependants' grant in Scotland - regardless of whether the amount was over or under £300.

Miscellaneous income

Enter any miscellaneous income which is taxable - for example, copyright royalties paid to you for a book when you are not a professional author. If you are unsure whether to include the income, call the Tax Credit Helpline.

Include all miscellaneous income – regardless of whether the amount is over or under £300.

What not to include

Don't include:

  • maintenance payments received from a former partner
  • tax credit payments
  • student loans
  • student grants, except the Adult Dependants' Grant or any dependants' grant in Scotland
  • income your children have had, unless it's taxable in your or your partner's name
  • the Christmas Bonus and the Winter Fuel Payment
  • income from tax-free savings such as Individual Savings Accounts (ISAs), Personal Equity Plans (PEPs), index-linked and fixed-interest National Savings Certificates, Children’s Bonus Bonds
  • war pensions
  • pensions or annuities paid to victims of Nazi persecution

If you are unsure whether or not to include income, call the Tax Credit Helpline.

Working out your total other income

To get the final figure:

  • add up your other income, including your partner's if you're part of a couple
  • take away £300 from this figure

Remember that you should include all of the money you received from the Adult Dependants' Grant, any dependants' grant in Scotland and miscellaneous income. This is regardless of whether the amount is over or under £300.

Write the final figure on your claim form or Annual Declaration Form, rounding it down to the nearest pound. If you end up with a minus figure, enter 0.

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