If you’re about to embark on your next educational challenge, now might be the ideal time to get your finances in order. Clarifying your position with regard to tax will save you time and stress in the long run, and could also provide a helpful boost to your student finances!

If you’ve not delved into the first part of IBISS & Co’s series on tax tips for students, check out ‘Top Tax Tips for Students: Part One’ now.

Tax Tips for Students: Earning Interest on Savings

If you’re fortunate enough to be earning more than you spend, it’s worth capitalising on your savings. The right savings account could increase your nest egg by hundreds of pounds in interest every year.

In terms of tax, savings aren’t always tax free. In the 2018/2019 tax year, for instance, if you fall into the basic tax rate band (earning income between £11,851 and £46,350), your tax-free personal savings allowance is £1,000. This reduces to £500 for those that fall into the higher-rate band (earning taxable income between £46,350 and £150,000 per annum). If you earn taxable income over £150,000 per year, you are not eligible for a personal savings allowance.

For most students, it’d be difficult to earn more than £46,350 per year – making it possible to accrue up to £1,000 of interest without paying any tax.

Tax Tips for Students: Choosing an ISA

When reviewing savings accounts, you might be tempted away from an ISA – interest rates are currently quite low, whereas other accounts (even some current accounts) offer more attractive rates. However, ISAs have two big advantages: any interest you accumulate from cash saved within an ISA is tax free, and the interest accrued has no impact on your student loan repayment schedule.

This means that you’re able to increase savings whilst you’re a student (and beyond) without worrying about paying tax; and, furthermore, once you’ve graduated, you’re not in any danger of being pushed over the repayment threshold due to accumulated interest.

Important considerations:

  • At present you can deposit up to £20,000 a year in an ISA – no more.
  • There are a few different types of ISA, but we’ll focus on cash ISAs here (as these are the most popular choices for students). An easy access ISA gives you the flexibility to withdraw cash when needed, but interest rates are variable (and you may not be able to put money back into the account at a later date, depending on where you stand with regard to the £20,000 ISA allowance). Fixed rate ISAs, by contrast, remove that flexibility: you’re not able to withdraw money for a fixed set of time (at least a year). Penalties apply in cases of early withdrawal. You benefit from a fixed rate of interest, however, which is generally higher than the rates offered by easy access ISAs.

Tax Tips for Students: Working Abroad

There are several scenarios in which a student might choose to work abroad: many courses offer a period of independent study in a foreign country, and many students also go travelling during the holidays (and pick up foreign employment during their trip). However, leaving the UK for a time does not mean that you are not considered a UK tax resident – and if you are still a UK tax resident, you will need to declare all foreign earnings (even if these are earned in another country and paid into a foreign bank account) to HMRC.

You will also need to consider your tax position if you run a business where you sell goods/services to an international audience. Though some big companies – like Amazon – offer guidance on this, this isn’t always the case. Similarly, if you’re an international student but have permission to work in the UK, you will need to manage your affairs carefully.

Foreign income is a complex area of taxation; as such, we recommend that you instruct an accountant or tax consultant to advise you on specific tax treaties/agreements on double taxation and help you avoid paying undue amounts of tax. A qualified tax professional will also be able to recommend how to make use of any potential allowances/exemptions, potentially saving you a great deal of money.

For more information on international tax affairs, non-doms vs. non-residents, and how to approach tax, please consult the relevant sections within these resources: ‘Expat Tax: How to Claim OWR’ and ‘Taxation of Non-Doms and Non-Residents’.

Tax Tips for Students: Council Tax

Many students are not aware that it’s possible to avoid paying any council tax on your accommodation whilst at university, potentially representing a huge saving!

The rules are as follows:

  • If a house is occupied solely by full-time students, it’s eligible for 100 council tax exemption.
  • For residences that house a mixture of non-students and full-time students, council tax will be due each month, but full-time student tenants are not required to contribute. If there was only one non-student tenant, they would be responsible for the bill, but would be eligible for a 25 reduction (single person’s discount).
  • Part-time students are not eligible for exemption, though there may be reductions available.

Tax Tips for Students: Means Testing

A small point, but a potentially vital one: if you’re applying for student finance, only taxable income is means tested, so you (or your parents) should ensure that you aren’t declaring non-taxable income on the relevant documentation. Including non-taxable income within your calculations could make a substantial difference to the declared totals, affecting how much finance you’re granted.

Remember, too, that bursaries and scholarships are typically tax free, and should have no impact on means-tested funding either.

With so many other things to think about, student tax can seem a bit daunting. IBISS & Co are here to help. Our team of friendly, expert accountants and tax advisers are qualified to assist on a variety of matters, providing cost-effective, accessible tax advice to suit the individual needs of every client. Call us today for an informal chat about our services.

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