Sarah Laing examines a tax-efficient government scheme designed to encourage those on lower incomes to save.
According to recent HMRC figures, some 163,000 people have already signed up for a ‘Help-to-Save’ account, depositing over £53 million to date. However, many more people may be missing out on a tax-free cash bonus currently on offer from the government.
Broadly, the Help-to-Save scheme offers working people on low incomes a 50% bonus, rewarding savers with 50p for every £1 saved. Over four years, a maximum bonus of £1,200 is available on savings of up to £2,400.
The scheme is designed to help those on lower incomes build up a ‘rainy day’ fund and encourage a long-term savings habit. Savings limits are flexible and it is not necessary to pay in every month to get a bonus.
Eligibility for an account
To be eligible to open an account, the applicant must be:
- receiving working tax credit;
- entitled to working tax credit and receiving child tax credit; or
- claiming universal credit and their household earned £569.22 or more from paid work in their last monthly assessment period.
Where payments are received as a couple, both partners can apply for their own Help-to-Save account.
The applicant must be living in the UK, or if living overseas either they or their spouse or civil partner must be a Crown servant or a member of the British armed forces.
If the account holder stops claiming benefits they can continue to use their Help-to-Save account.
How and when?
How much is saved and when is up to the account holder – the rules stipulate that investors can save between £1 and £50 every calendar month, up to a maximum of £2,400 over a four-year period.
Accounts last for forty eight months from the date the account is opened and the government bonuses are added at the halfway point (i.e. after two years), and at the end of the four year lifespan of the account, or on the date that the individual becomes terminally ill or dies, if earlier.
After the first two years, a bonus of 50% of the highest balance saved will be paid. After four years, the account holder will receive a final bonus of 50% of the difference between two amounts:
- the highest balance saved in the first two years; and
- the highest balance saved in the last two years.
If an account is closed or ceases to be a Help-to-Save account before the end of a bonus period, no bonus is payable. The maximum bonus payable is £1,200.
Help-to-Save accounts will be available to open up until September 2023.
Payments can be made by standing order on a weekly, fortnightly, or monthly basis. It is also possible to make one-off payments by debit card from the Help-to-Save online account. Note that any payments, including standing orders, need to arrive in the account before the last working day of the month to ensure they are credited to that month.
Money can be withdrawn from the account at any time, but this could affect the size of the government bonus.
Opening an account
To apply, savers can visit: www.gov.uk/helptosave, or use the HMRC app. Opening an online account should be very straightforward and it should take the individual less than five minutes to do.
HMRC may decline to accept an application an account within 21 days of the date of the application, stating reasons accordingly. Applications can be declined if HMRC has reason to believe that the declaration or application is untrue or contains matters which are untrue. The regulations governing the scheme allow for appeals where HMRC decline an application.
Practical tip
The investment limits mean that £2,400 is the maximum an individual can save, with a maximum government bonus payable of £1,200. In comparison, high street banks are currently offering a typical interest rate of between 1% and 2% on savings bonds, which does appear to make the Help-to-Save account a particularly attractive option for someone looking to save.
