Receiving tax credits? Check if you can open a Help-to-Save account before you miss out!

What is the Help-to-Save scheme?

The Help-to-Save scheme allows people who receive tax credits or universal credit, subject to certain conditions, to earn a tax-free bonus of up to 50p per £1 saved. So if, for example, you save £200, the government would give you a bonus of up to £100!

The account, delivered by NS&I and HMRC, was introduced by the government to help those on low incomes build up their short-term savings and to encourage them save regularly.

Individuals can save up to £50 each calendar month into the account. A bonus is paid at the end of year 2 and year 4. The account finishes at the end of year 4.

You can take money out of the account whenever you want.

The bonuses are calculated using the highest balances achieved in the account, so taking money out will affect your bonus. But you will not lose any bonus you have built up before you made the withdrawal, as long as you keep the account open.

If you save the maximum amount of £2,400 (48 months multiplied by £50) into the account over its four-year life without making any withdrawals, you will receive bonuses totalling £1,200.

Who can open a Help-to-Save account?

To be eligible for a Help-to-Save account, you must be in the UK and you cannot have previously opened one.

You must also either:

• be entitled to working tax credit and actually receiving either working tax credit or child tax credit payments, or
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• be receiving universal credit and have earned income of at least 16 hours a week at the national living wage (from 1 April 2019, this is equivalent to £569.23 in a month – note this figure will increase from April 2020 in line with the increase in national living wage) in your previous assessment period.

You only need to meet one of the above conditions when you apply. Once the account is open, it does not matter if you later cease to be eligible (though there are certain restrictions if you later leave the UK). For full details, see Who is eligible for a Help-to-Save account?

If you have a change of circumstances that ends your tax credits claim or your claim ends because you move to universal credit, you may no longer qualify to open a Help-to-Save account unless you meet the universal credit qualification conditions. Therefore, if you currently meet the conditions as a tax credits claimant, you may want to consider opening a Help-to-Save account while you still can.

Our example of Harriet below helps to show this.

I don’t have any (or not very much) spare income. Should I still open an account?

Although you can save up to £50 a month into a Help-to-Save account, it is possible to save as little as £1 at a time, or even nothing at all. You do not have to save something every month, but if you do not use your £50 allowance in one month, you cannot make up the amount later.

The tax-free bonus of up to 50p per pound saved is very generous, so it may still be worthwhile having an account in case your circumstances change and you find you are able to save money in the future.

Be aware, however, that the account runs for four years from the date of opening (unless you close it early) – not the date of the first deposit. This means you need to weigh up the risk of missing out on an account altogether against the possible benefits of being able to use the account in future and get a bonus.

This depends on your circumstances, but let’s consider an example to show how opening an account might be a good move.

Example - Harriet

Harriet is a single mother on a low income. She claims tax credits at the moment. She thinks she could afford to save a small amount. She opens a Help-to-Save account in February 2020 and manages to save £10 a month.

In August 2020, Harriet and her son move in with her partner. This change of circumstances means that Harriet’s tax credits claim ends. Due to her partner’s income level, the couple do not get any universal credit.

Harriet, although no longer a tax credits claimant, can keep her Help-to-Save account open for its full four-year life. Now that she is sharing household bills with her partner, she is able to save the full £50 per month from August 2020 until January 2024.

She cannot make up the £40 a month she was unable to save for the first six months, but overall she saves £2,160 and gets total bonuses of £1,080.

If Harriet had not opened the account before she moved in with her partner, she would have missed out on this chance altogether.  

How are tax credits claimants being moved to universal credit?

First, you should note that it is not generally possible to make a new claim to tax credits now that universal credit is available, although there are some key exceptions.

At the moment, if you are a tax credits claimant then you are only likely to be affected by universal credit if:

• you choose to make a claim for universal credit; or
• you have a change of circumstances which ends your tax credit claim and still need to claim support; or
• you need to make a claim for another benefit which universal credit has replaced (for example, housing benefit).

In the above circumstances, you will migrate ‘naturally’ to universal credit.

Other tax credits claimants will go through a ‘managed migration’ to universal credit. Managed migration is currently undergoing a pilot stage affecting some tax credits claimants already. It is the current intention of the Department for Work and Pensions to take the remaining tax credits claimants through the process between November 2020 and September 2024.

For more information on this, please refer to our partner website, Revenuebenefits.

How do I open a Help-to-Save account?

You can open an account online on GOV.UK or through the HMRC app, which is available to download for free for iOS or Android.

For more information, please refer to our guidance.

Tim Henderson