Help-to-Save

The Savings (Government Contributions) Bill is currently making its way through Parliament, having had its second reading in the House of Commons on 17 October 2016. Broadly, if enacted, the Bill will introduce two new schemes – the lifetime ISA and Help-to-Save – both of which are designed to support more people as they try to save for the future.

Help-to-Save will target working families on the lowest incomes to help them build up their savings. The scheme will be open to some 3.5 million adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit. It will work by providing a 50% government bonus on up to £50 of monthly savings into a Help-to-Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Savers will be able to use the funds in any way they wish.

There has been concern within the tax profession that the initial consultation on Help-to-Save does not mention the tax status of the scheme. Calls have been made for a specific exemption to be written into tax law to exclude both the government bonus and any interest on the accounts from income tax. Perhaps the most obvious way o| f dealing with this would be to give Help-to-Save accounts Individual Savings Account (ISA) status. This would also have the knock-on effect of dealing with concerns over what happens on death and compliance aspects of transferring accounts between providers, both of which are taken care if in the ISA legislation.

It is generally felt that whilst the income might otherwise fall within individuals’ 0% starting rate for savings band, or their personal savings allowance, it would be altogether simpler to have a specific exemption so that no calculations are necessary.

Whilst the Bill continues its journey through Parliament, HM Treasury says that the new accounts will be available no later than April 2018.

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