Sarah Laing provides an update on current opportunities to boost savings.
Whilst interest rates remain relatively low, bank and building societies are often unable to provide investors with a ‘wow’ factor, so any measures which incentivise savings will generally be welcomed.
Premium bonds
With a return rate comparable with regular savings accounts (currently 1.40%), it is not difficult to see why premium bonds (PBs) remain one of Britain’s favourite ways to save. In the 2018 Autumn Budget, the Chancellor announced several changes to PBs, which should help make them more accessible for all.
Currently, the minimum amount of PBs that can be purchased is £100 (or £50 by standing order). The good news is that this limit will be cut to £25 by the end of March 2019. This will apply to both one-off purchases and regular savings.
In addition, the rules on who can purchase PBs are being changed. Currently, only parents and grandparents can buy PBs for children under 16. Although the timescale is yet to be confirmed, it has been announced that in future, it will be permissible for other adults to buy PBs on behalf of children. The person purchasing the bonds for children will have to be over 16 and must nominate one of the child's parents or guardians to look after the bonds until the child turns 16.
The maximum PB holding will remain at £50,000.
NS&I has also confirmed that it will be launching a new PB ‘app’ in the new year, which is designed ‘to make saving easier’.
Although PBs are not strictly an ‘investment’, they can be encashed at any time with the full amount of invested capital being returned - and in the meantime, any returns by way of ‘winnings’ will be tax-free. The odds on winning a prize in any one month are currently 24,500 to one. There are currently two £1 million prizes, five £100,000 prizes, and ten £50,000 prizes each month.
Individual savings accounts
The maximum annual investment limit for individual savings accounts (ISAs) will remain at £20,000 for 2019/20. The limit effectively allows a couple to save a not-insignificant £40,000 a year and receive interest on the investment tax-free. There will also be no capital gains tax to pay when the account is closed.
Junior ISAs are available to UK-resident children under 18 and run on similar lines to ‘adult’ ISAs. The maximum investment limit for 2018/19 is £4,260, rising to £4,368 for 2019/20, which provides adequate scope for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren.
Help-to-buy ISAs and equity loans
Help-to-buy ISAs continue to be available to assist first-time buyers saving a deposit to purchase their first home. Broadly, up to £200 a month can be saved in the ISA (along with an initial deposit of £1,000, and up to a maximum of £12,000) and, provided certain conditions are met, the government will provide a 25% boost to the savings up to a maximum of £3,000 per person. A couple buying together could, therefore, save up to £30,000 tax-free towards the purchase of their first home.
The help-to-buy loan equity scheme for new-build properties is designed to help those with 5% deposits get on the housing ladder. The government lends up to 20% of the property price and after five years, the purchaser starts paying interest on the loan. The scheme was due to end in 2021, but it was announced in the Autumn Budget 2018 that it has been extended until 2023. However, the scheme is now only open to first-time buyers, and lower regional price caps will be applied.
Practical Tip:
The government’s help-to-buy website (www.helptobuy.gov.uk) provides useful guidance on various incentives currently available to help people buy their own home.
