Press Release: Help to Save welcomed but watch out for withdrawal penalties
The Low Incomes Tax Reform Group (LITRG) comments on the launch of the Help to Save scheme today, which gives some tax credits or Universal Credit claimants the opportunity to earn a tax-free bonus of up to 50 per cent on amounts saved.
Victoria Todd, Head of LITRG Team, said:
“The Help to Save account provides a good incentive for those on the lowest incomes to build a savings pot, which we hope reduces their chance of falling into debt when unexpected expenses arise.
”We are concerned about the public’s understanding of the impact of making withdrawals from the account. In most cases, making a withdrawal will reduce the bonus payable. This is because the bonus is calculated on the account balance and not just on the amount paid in.1 In some cases, a withdrawal can effectively attract a penalty of up to 50 per cent of the withdrawal.
”The Government should ensure their publicity efforts for the Help to Save scheme do not distract individuals from considering their longer-term savings needs.
“The Help to Save account is based on a simple, straightforward premise. It represents a welcome addition to the existing suite of government incentives for short- and long-term savings.”
Eligible individuals can open a Help to Save account online or through the HMRC app. Those who do not have access to the internet can open an account by calling HMRC on 0300 322 7093.
LITRG has worked with HMRC throughout the Help to Save trial period. The scheme encourages individuals to form a regular savings habit by capping the monthly amount that can be paid into the scheme to £50. Furthermore, bonuses are only paid after 24 and 48 months. The maximum an individual can save is therefore £2,400 over four years, potentially achieving a bonus of £1,200.
1 The first bonus, payable after 24 months, is 50 per cent of the highest balance achieved in the first 24 months. The second bonus, payable after 48 months, is 50 per cent of the difference between the highest balance achieved in the second 24-month period and the highest balance achieved in the first 24-month period.