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Tax credit income counts ISA interest and does not deduct pension contributions or Gift Aid (SI 2002/2006 regs 3(7), 10) #2056

Description

@MaxGhenis

Problem

Found while checking every source in tax_credits_current_year_income against SI 2002/2006 for #2052 (State Pension in step one). Three more differences from the regulations, none fixed by that PR:

  1. ISA interest is counted. Step one reads savings_interest_income. The Enhanced FRS builds that as taxable interest plus tax_free_savings_income (ISA accounts), and income tax then subtracts tax_free_savings_income. Tax credit income does not, so ISA interest counts as investment income.
  2. Registered pension contributions and Gift Aid are not deducted. employment_income is gross of the employee's pension contributions, and nothing is taken off.
  3. other_investment_income is left out of step one. It is interest and similar income (income tax adds it to savings interest in taxable_savings_interest_income).

Law

Fetched from legislation.gov.uk (/data.xml, revised text), 2026-10-02.

  • SI 2002/2006 reg 10(1): "“investment income” means the gross amount of— (a) any interest of money, whether yearly or otherwise, or any annuity or other annual payment ...; (b) any discounts on securities; (c) any income from securities payable out of the public revenues of the United Kingdom or Northern Ireland; (d) dividends and other distributions of a company resident in the United Kingdom ...".
  • Reg 10(2)(a): "there shall be disregarded— (a) any amount listed in column 1 of Table 4 to the extent shown in the corresponding entry in column 2". Table 4 item 1: "Any interest, dividends, distributions, profits or gains in respect of investments under— (a) a Personal Equity Plan, or (b) an Individual Savings Account, in respect of which the claimant is entitled to relief from income tax under Chapter 3 of Part 6 of ITTOIA ..." Extent: "The whole amount".
  • Reg 3(7): "In calculating income under this Part there shall be deducted ...— ... (b) the grossed-up amount of any qualifying donation (within the meaning of Chapter 2 of Part 8 of ITA (gift aid)), made by the claimant or, in the case of a joint claim, by either or both of the claimants; ... and (c) the amount of any contribution made by the claimant, or in the case of a joint claim, by either or both of the claimants to a registered pension scheme together with the amount of any tax relief due on those contributions."

Size in the data

From a real Microsimulation on a private copy of the Enhanced FRS 2024-25, for 2024-25 (the last year of awards), counting the claimant's and partner's amounts. These are the amounts held, not the change in awards, which needs a run with the fix.

Amount Benefit units claiming tax credits Of which in payment and income-tested
ISA interest 91 records (64k weighted), £4.5m 6 records, £0.02m
Registered pension contributions 172 records (68k weighted), £214.5m 26 records (15k weighted), £10.7m
Gift Aid 33 records (7k weighted), £22.0m none
Other investment income none none

So the pension contribution deduction is the one that moves awards: up to 41% of £10.7m. The ISA disregard and other investment income are close to nil in this dataset.

Suggested fix

  • Step one: count savings_interest_income less tax_free_savings_income, and add other_investment_income.
  • After step four: deduct pension_contributions (check whether it is gross of basic-rate relief for relief-at-source schemes) and gift_aid_grossed_up, for the claimant and partner.
  • Each with YAML cases from the law, a Hypothesis property, and a real Enhanced FRS run for 2024-25.

Also noted, tracked elsewhere

  • Property income: reg 11(2) disregards rent-a-room profits (ITTOIA ss.791-798). That depends on the householder lodger income work in Model rent from boarders, lodgers and sub-tenants for the householder #2002 and its uk-data inputs.
  • The formula still counts the income of the programme's own children and young persons (a follow-up already noted in the code). Their ISA interest is part of what item 1 counts today.
  • Reg 7 Table 3 items 14 and 16 (short-term lower-rate Incapacity Benefit; contribution-based JSA above the ITEPA s.674 maximum) have no data to apply them.

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