Coronavirus: Taking money from your savings
If you are facing disruption to your income as a result of the coronavirus pandemic you may be thinking about whether you can access funds from tax-efficient cash savings accounts. Depending on the account, there may be tax implications or financial penalties from making these withdrawals. This article highlights these implications for Help-to-Save accounts and different types of Individual Savings Account (ISA).
Financial advice and being wary of scams
⚠️ Please note that we are not authorised to give financial advice. This article simply sets out some facts for you to consider in terms of tax or other financial penalties on taking money out of savings.
You should consider taking financial advice before acting, taking into account your overall personal and financial circumstances.
Also, watch out for scams. While there are always fraudsters trying to scam people for their savings, such activity might be even higher in the present situation, with scammers trying to use the coronavirus as a ‘hook’ to catch you out. The Financial Conduct Authority has issued guidance to help you avoid investment-based scams. We have also published guidance on avoiding tax-based scams.
As explained in our detailed guidance, Help-to-Save is a four-year savings scheme which pays a tax-free bonus of up to 50% of the amounts saved, available to individuals who meet certain conditions. You can pay up to £50 per calendar month into the account.
It is possible to make a withdrawal from a Help-to-Save account without an immediate penalty. However, withdrawals do not increase the amount you are able to pay into the account for the month of withdrawal or any future month. This means, you cannot simply ‘put back’ the money you have taken out. Also, the bonus payment is based upon the highest balance achieved, so making a withdrawal may therefore affect your bonus payment.
Let’s look at a simple example:
You have built up £300 in your Help-to-Save account to date. You now take out £250, taking your balance down to £50. You are still limited to saving £50 a month, so you would have to save for at least a further 7 months before you could get the balance above £300 again, and start to build up more bonus.
⚠️ Importantly, even if you take all the money out of your Help-to-Save account and cannot afford to go back to saving into it, keep the account open for its full term. You will then still get any bonus you have built up, at the end of two or four years.
You can find detailed information on Help-to-Save withdrawals in our main guide.
Individual Savings Accounts (ISAs)
ISAs are a type of tax-free savings account available to individuals who are resident in the UK.
There is an overall limit on the amount which you can save into an ISA (or ISAs) for each tax year. For 2019/20, the limit is £20,000 (for all types excluding the Junior ISA, for which there is a separate limit).
Cash ISAs are relatively straightforward cash accounts on which you can earn tax-free interest on your cash savings if you are aged 16 or over.
If you have an ‘instant access’ cash ISA, then you can generally withdraw money whenever you like without penalty.
However, if you have a ‘fixed-term’ cash ISA, then you will need to check to see whether you can access funds before the end of the fixed term. Even if you can, there may be a penalty for an early withdrawal.
In addition, the ISA may be ‘flexible’ or ‘not flexible’. If the ISA is flexible, then you can withdraw money from an ISA and return it in the same tax year without the funds counting towards the £20,000 subscription limit when they are returned. Not all ISAs are flexible, so you should check with your provider.
Stocks and shares ISAs
You need to be 18 or over to have a stocks and shares ISA.
With stocks and shares ISAs, you can sell the assets at any time with no penalty and there is no minimum length of time you need to hold them. There is no capital gains tax on selling the investments within a stocks and shares ISA. Equally, if you sell the investments at a loss (that is, for less than they were bought for), you cannot get tax relief for the loss.
However, unlike flexible cash ISAs, if you take the sale proceeds out of the account and then re-invest these funds then it will count towards your ISA subscription allowance.
Innovative Finance ISAs
Innovative Finance ISAs allow individuals aged over 18 to invest in peer-to-peer loans rather than cash or stocks and shares.
You may not be able to easily access funds held in an Innovative Finance ISA if they are allocated to a loan. You should check with the provider. A fee may be payable.
Like stocks and shares ISA, if you withdraw money from the ISA then re-invest these funds then it will count towards your ISA subscription allowance.
A Lifetime ISA is designed as a longer-term savings vehicle which individuals aged between 18 and 40 can open to save towards a deposit for their first home or towards future retirement savings. You can save up to £4,000 per year and receive a tax-free bonus of 25% at the end of the year. You cannot add money to them after the age of 50.
If you wish to withdraw the funds other than to buy your first home or after you have reached age 60, or if you are terminally ill, then you must normally pay a penalty equal to 25% of the amount withdrawn. This can mean that you get back less than you invested.
However, on 1 May 2020 the government announced that as a result of the coronavirus pandemic and recognising that people may need to access their Lifetime ISA funds, the withdrawal penalty will be temporarily reduced from 25% to 20% for withdrawals made between 6 March 2020 and 5 April 2021. Effectively, this means that the government bonus needs to be paid back, but there is no further penalty. The change is backdated to 6 March 2020, so that anyone who has withdrawn money since that date and paid a 25% charge will have the difference refunded.
For example, if you invest £4,000 into the account and receive a government bonus of £1,000 (being 25% of £4,000), then you will have a total of £5,000 in the account. If you withdraw £5,000 on 1 May 2020 then you must pay a charge of £1,000 (20% of £5,000) and you will end up with £4,000 in your pocket, which is the same amount you originally invested. Note, however, that this assumes your original capital investment is still available – you might not be able to get back the full amount if what you invested the savings in has gone down in value.
Note also the age restrictions on Lifetime ISAs. If you opened one before the age of 40, you can keep saving up to age 50. But if you are now 40 or over, you will not be able to open a new Lifetime ISA. You might therefore want to consider not closing down existing Lifetime ISAs altogether, if you would then not be able to use them again in future.
Help-to-Buy ISAs could only be opened from 1 December 2015 to 30 November 2019. You can save up to £200 per calendar month into a Help-to-buy ISA and the government will pay a 25% bonus of amounts saved upon purchase of your first home.
If you have a Help-to-Buy ISA then you can access your funds without paying any charge on withdrawal.
However, note that you will not be able to put the money back in – monthly deposits are limited to £200, whether or not you have made a withdrawal. Taking money out may therefore affect the bonus which can be accrued, and if you take all the money out, you will not be able to open a new one as the scheme closed on 30 November 2019. Note, however, that if you meet the criteria, you might be able to open a Lifetime ISA instead (see above).
For more information, please see the government FAQs.
Junior ISAs and Child Trust Funds
Junior ISAs can be opened for your child if they are under 18 and live in the UK. There is a separate subscription limit for Junior ISAs. For 2019/20, the limit is £4,368 (increasing to £9,000 for 2020/21).
The money in the account is not accessible until the child is 18, other than on terminal illness or death of the child.
Child Trust Funds (a government savings scheme for children born between 1 September 2002 and 2 January 2011) are also restricted. Our Revenuebenefits website explains more about these accounts.
Where can I find more information?
The Money Advice Service provides lots of useful information on these accounts.
You can also read about different types of ISAs on GOV.UK.
You can also refer to our own guidance on savings and tax.