In this section we look in detail at the Government’s new ‘Help-to-Save’ savings scheme, which pays a tax-free bonus of up to 50% of the amount saved. It is only available to individuals claiming certain benefits.
What is a Help-to-Save account?
The Help-to-Save scheme allows individuals who meet certain conditions to open a four-year savings account which pays a tax-free bonus of up to 50% of the amount saved. It has been introduced by the Government in order to help families on low incomes build up their short-term savings and to encourage them to form a regular savings habit.
Individuals can save up to £50 each calendar month into the account. A bonus is paid on the second and fourth anniversaries of the date the account was opened. The bonuses are calculated by reference to the highest balances achieved in the account, so it is important to note that making a withdrawal from the account will affect the bonus paid. You can read more about how the bonuses are calculated below.
If an individual saves the maximum amount of £2,400 (48 months x £50) into the account over its four-year life without making any withdrawals, they will receive bonuses totalling £1,200.
The scheme is administered by HMRC and the account is maintained by National Savings and Investments (NS&I).
Who is eligible for a Help-to-Save account?
In order to be eligible to open a Help-to-Save account, firstly you must be in the UK and you cannot have previously opened a Help-to-Save account. You must also either:
- be entitled to Working Tax Credit and actually receiving either Working Tax Credit or Child Tax Credit payments, or
- be receiving Universal Credit and have earned income of at least 16 hours a week at the National Living Wage (equivalent to £542.88 in a month) in your previous assessment period.
One of the conditions must be met on the day you apply for the Help-to-Save account (and also on the day the application is accepted). 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.
It is not possible to open a joint Help-to-Save account. If you and your partner each meet the conditions relating to tax credits through a joint claim, then you may each open an individual Help-to-Save account.
If you are receiving Universal Credit as a couple, HMRC have confirmed that the condition relating to earned income is assessed against the total earned income of both you and your partner. If this exceeds the minimum earnings required, then both you and your partner may open a Help-to-Save account, even if one of you does not work.
You should consider the same figure for earned income which is used in your Universal Credit assessment for the period in question. Sources of unearned income, such as bank interest and some other benefits such as Carer’s Allowance do not count towards the threshold. If you are self-employed with low profits such that your earned income for Universal Credit purposes is adjusted by the minimum income floor, you should consider the adjusted figure.
Being ‘in the UK’ for the purposes of opening a Help-to-Save account has a specific meaning depending on whether you are claiming tax credits or Universal Credit. If you are claiming tax credits, please see our guidance 'who can claim tax credits?'. If you are claiming Universal Credit, please see this guidance on our partner website, revenuebenefits.org.uk.
How can I open a Help-to-Save account?
Eligible individuals can apply for a Help-to-Save account at any time from September 2018 to September 2023. 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.
In order to set up your account, you’ll need the following information:
- Your National Insurance number
- The details of your bank account into which the bonus and any withdrawals will be paid
- A Government Gateway account (if you don’t have one, you can create one as part of your application).
If you do not have access to the internet, you can also set up an account by calling HMRC on 0300 322 7093.
You do not need to submit any paperwork.
Once your account is opened you will receive a welcome pack from HMRC as well as the sort code and account number of your new Help-to-Save account.
How do I pay into a Help-to-Save account?
You can pay into the account on a regular basis by setting up a standing order. You will need to arrange a standing order with your bank to pay an amount to your Help-to-Save account at a frequency to suit you.
However, you should note that if you set up a standing order to pay into the account on a weekly basis, this may result in an irregular total amount being paid into the account each calendar month. For example, a standing order of £10 a week will equate to £40 a month in some months and £50 in others.
You can also make one-off payments by debit card by logging into your Help-to-Save account online, on GOV.UK.
HMRC are developing functionality to allow individuals to arrange deductions directly from their salary. The employer would then make these payments directly to the Help-to-Save account on the individual’s behalf. It should also soon be possible to make payments directly from the HMRC app.
It is not currently possible to arrange deductions directly from benefit payments.
How much can I pay into a Help-to-Save account?
For each calendar month, you may only pay a maximum of £50 into the account, even if you have made a withdrawal that month. However, you do not need to pay the maximum or indeed anything at all. You should only pay what you can afford.
If you do make a payment into the account, it must be between £1 and £50.
What happens if I want to pay more or less than £50 into the account in a month?
If you attempt to exceed the monthly limit of £50, the payment which causes you to exceed that limit will simply be returned to you.
If you pay less than £50 into the account in a month, you should be aware that you will lose the opportunity to achieve a 50% bonus on the shortfall. It is not possible to make up the difference in a subsequent month. For example, if you only pay £30 into the account in one month, the limit for each subsequent month will remain unchanged at £50.
What happens if I make a withdrawal?
You can make a withdrawal from the account at any time by logging into your Help-to-Save account and making the request. The funds will be transferred to your nominated bank account in about three days.
Withdrawals do not increase the amount you are able to pay into the account in a month. For example, if you have paid £40 into the account in a month and then immediately withdraw £20, you may still only pay a further £10 into the account that calendar month.
Therefore, unless you are able to replace any funds withdrawn within the same calendar month and within the remaining subscription limit for that month, withdrawals will have an impact on your bonus payments. This is because the bonus payments are calculated based on the highest balances achieved in the account. Otherwise there is no penalty for making a withdrawal.
For example, suppose an individual saves the maximum of £50 a month into their Help-to-Save account and makes a withdrawal of £200 after 12 months (leaving £400 in their account). After a further 12 months of saving £50 a month, the balance on the account will be £1,000 (£400 plus £600). Their first bonus payment will be 50% of £1,000, i.e. £500. If they had not made the £200 withdrawal, the balance on the account after 24 months would have been £1,200. In this case the first bonus would have been 50% of £1,200, i.e. £600.
For a more detailed example of how making a withdrawal has an impact on your bonus payments, please see below.
How is the bonus calculated and paid?
Over the four-year life of the account, bonuses are paid on the second and fourth anniversaries of opening the account. They are paid in to the bank account which is nominated when you apply for the account, not the Help-to-Save account itself. The second bonus is calculated slightly differently from the first.
The first bonus is calculated by taking 50% of the highest balance achieved in the first two years of the account being open.
The second bonus is calculated by taking 50% of the difference between:
- The highest balance achieved in the first two years (which was used in the calculation of the first bonus), and
- The highest balance achieved in the third and fourth years.
Jane opens a Help-to-Save account and arranges to pay £10 a week into the account beginning on 1 October 2018. On 1 December 2019, she makes a withdrawal of £200 to pay for Christmas presents. On 1 January 2022, she makes a further withdrawal of £500 in order to fund a holiday. On 30 May 2022, she makes her last payment into the account, but keeps it open.
After two years, the highest balance Jane has achieved is £850 (£10 multiplied by 105 weeks less the £200 withdrawal). The first bonus is therefore 50% of £850, which is £425. The bonus is paid into the separate, nominated bank account.
Immediately prior to withdrawing the funds for her holiday on 1 January 2022, the balance on the account is £1,500 (£850 + £650 (£10 multiplied by 65 weeks)). When she makes the £500 withdrawal, the balance becomes £1,000.
Jane continues paying £10 a week into the account until 30 May 2022, but by this point, she has only achieved a balance of £1,220 (£1,000 + £220 (10 multiplied by 22 weeks)).
The second bonus is calculated as follows:
|The highest balance achieved in Years 3 and 4||£1,500|
|Less: the highest balance achieved in Years 1 and 2||£(850)|
|Second bonus (50% of the above)||£325|
Note that Jane has paid a total of £1,920 into the account, but because of her withdrawals she only achieves bonuses totalling £750 (£425 + £325), representing 39% of the total investment (rather than the 50% she might have been expecting).
Is interest paid on the account?
Is the bonus taxable?
No, nor is it reportable as income for tax or benefit purposes.
How does saving in a Help-to-Save account affect my benefit entitlement?
The Help-to-Save bonus is not treated as income for benefits purposes.
However, while the balance in your Help-to-Save account is ignored for Tax Credit purposes, it is treated as capital for Housing Benefit and Universal Credit purposes. Your claim to either of these benefits would be affected if your total capital exceeds £6,000.
You should be aware that if two partners each take out a Help-to-Save account, saving the maximum possible over four years, the combined capital and bonus payments at the end of the four years would exceed the £6,000 threshold.
Can HMRC take money from my Help-to-Save account?
While HMRC have legal powers to recover debts from any UK bank account in limited circumstances and Help-to-Save accounts are no different from any other account in this respect, HMRC will generally not use these powers against vulnerable customers.
What happens to my Help-to-Save account after four years?
After four years from the date of opening, your Help-to-Save account will be closed automatically. The balance will be transferred to your nominated bank account along with any final bonus payment.
What happens if I want to close my Help-to-Save account early?
It is possible to close your Help-to-Save account before the end of the four year term, but you must keep it open in order to receive any bonus payment.
If you close your account before you are due to receive the bonus, you will forfeit the bonus.
What happens if I leave the UK?
If you leave the UK temporarily (generally for no more than 52 weeks), you are able to contribute to your Help-to-Save account as normal for:
- the first 8 weeks, if you are claiming tax credits, or
- the first month, if you are claiming Universal Credit.
It is possible to extend this period (to no more than 6 months) if you are a mariner or continental shelf worker, or your absence from the UK is in connection with:
- the death of your partner, your child or a close relative,
- the treatment for an illness or physical or mental impairment of you, your partner or your child.
The extent to which it is possible to extend the period will depend on your circumstances.
If you continue to be absent from the UK beyond this period, you must inform NS&I and stop making contributions to your Help-to-Save account. Failure to do so may incur a penalty. However, you do not need to close your Help-to-Save account and you will continue to be eligible for the tax-free bonus.
Where can I find more information?
You can find information on GOV.UK about Help-to-Save.
If you are considering opening a Help-to-Save account, you might be interested in a report by LITRG volunteer, Kelly Sizer, ‘The complexities of government-incentivised savings schemes for people on low incomes' (October 2017) looking at the conundrum faced by those on low-incomes when considering where best to put their savings.
In the report auto enrolment, Help-to-Save and the Lifetime ISA are compared and contrasted assuming someone has £50 a month to put away. It will come as no surprise that it can be a very complex decision!
For a summary of the key points, please see our news item 'Solving the savings conundrum'.