Accountant

A Low Income “Help to Save” Account Will Attract a 50% Government Top-up, but is it Worth the Investment?

ISA

The government wants to encourage low-income households to start saving for eventualities, retirement and the future. Available by April 2018, it is designed to encourage low-income earners to put aside up to £50 p.m., which the government will top up by 50%. But is it good for all low earners?

Who is eligible?

Low-income adult households receiving in-work benefits, working a minimum of 16 hours at the National Living Wage (NLW) rate, and receiving Universal Credit or Working Tax Credits are eligible.

How will it work?

Individuals and low-income households will be able to open a “Help to Save” account, into which they’re allowed to save up to £50 a month. Saving into this account will attract a 50% government bonus after two years, earning the account holder a bonus of £600; but savers have the option of continuing to save into the same account for a further two years to receive an additional £600. If the maximum £50 is saved each month it would be possible to build up a savings pot of £3,600 after four years, and £1,200 of that will be from the government.

Who might and might not benefit?

There is a fair amount of discussion among financial pundits about the “Help to Save” scheme. Some commentators are saying that it represents the gradual removal of the welfare state by the back door, while others suggest that individuals who are paid via PAYE would be better off directing the money to their workplace pension pot, because payments into a pension are tax-free and topped up by the employer.

But possibly …

For the self-employed, sole traders and some limited company contractors as well, the scheme could be worth considering if in receipt of in-work benefits. However, as with any investments, taking an overview of income, debt, other savings, and investments on a personal/household and income level is very important. It is essential to consider whether it really is advantageous to save through the scheme or whether it just appears to be so. There has been a lot of discussion around the issue of whether it could be better for freelancers and contractors to pay into an insurance policy to protect them should work dry up or they fall ill.

Two other schemes

A new “Lifetime ISA” will become available for savers between eighteen and forty from 6 April 2017. In this account, it is possible to invest a maximum of £4,000 p.a.

The government Help to Buy ISA is another good bet for those wanting to get on the property ladder. With this scheme, first-time buyers saving for a deposit will be able to invest up to £200 a month in a dedicated ISA that the government will top-up by 25%, equal to a £50 bonus for every £200 saved. The maximum bonus from the government is £3,000 where someone has managed to save £12,000. The account can be opened with a one-off lump sum of up to £1,000, in addition to the monthly £200 maximum deposit.

Conclusion

Overall, the government is offering some great incentives to save, and so why not make the most of it. The Chancellor is doing his best to maximise the efforts of hardworking taxpayers, those who wish to save for the future, or who are determined to get onto the property ladder. By helping savers in this way, he is also building up the public purse, to make the economy more robust.

Please get in touch if any of these schemes interest you. Your account manager can talk you through the advantages of each of the schemes and discuss eligibility against which is likely to profit you most.

About the Author:

Sumit Agarwal
, A specialist accountant and tax adviser for freelancers, contractors and small businesses since 2005, He is an expert in business growth and development strategies. A renowned tax expert for owner managed businesses and contractors, He won the British Business Forum’s Young Entrepreneur Award in September 2012, presented at the House of Commons by MP Vrinder Sharma.