Tax-efficient savings for all the family

Although interest rates remain low, there are still various tax-efficient savings incentives available which may help maximise potential returns. This article summarises some of these schemes.

Help-to-save

The Help-to-save scheme offers working people on low incomes a 50% bonus, rewarding savers with 50p for every £1 saved. Over four years, a maximum bonus of £1,200 is available on savings of up to £2,400. Savings limits are flexible and it is not necessary to pay in every month to get a bonus.

How much is saved and when is up to the account holder – the rules stipulate that investors can save between £1 and £50 every calendar month, up to a maximum of £2,400 over a four-year period.

Accounts last for forty-eight months from the date that the account is opened and the government bonuses are added at the halfway point, i.e. after two years, and at the end of the four-year lifespan of the account, or on the date that the individual becomes terminally ill or dies, if earlier.

Accounts will be available to open up until September 2023 and may be held by anyone:

• receiving Working Tax Credit;
• entitled to Working Tax Credit and receiving Child Tax Credit;
• claiming Universal Credit and their household earned £604.56 or more from paid work in the last monthly assessment period.

The investment limits mean that £2,400 is the maximum an individual can save, with a maximum government bonus payable of £1,200. In comparison, high street banks are currently offering a typical interest rate of between 1 and 2% on savings bonds, which does appear to make the Help-to-Save account a particularly attractive option for someone looking to save.

ISAs and Junior ISAs

The maximum annual investment limit for Individual Savings Accounts (SAs) remains at £20,000 for 2020/21. The limit effectively allows a couple to save a not-insignificant £40,000 a year and receive interest on the investment tax-free. There will also be no capital gains tax to pay when the account is closed.

Junior ISAs are available to UK-resident children under-18 and run on similar lines to ‘adult’ ISAs. The maximum investment limit has been significantly increased for 2020/21 to £9,000 (from £4,368 in 2019/20). This increase provides adequate scope for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren.

Help-to-buy ISAs and equity loans

help-to-buy ISAs continue to be available to assist first-time buyers to save a deposit to purchase their first home. Broadly, up to £200 a month can be saved in the ISA (along with an initial deposit of £1,000, and up to a maximum of £12,000) and, provided certain conditions are met, the government will provide a 25% boost to the savings up to a maximum of £3,000 per person. A couple buying together could, therefore, save up to £30,000 tax-free towards the purchase of their first home.

The Help-to-buy loan equity scheme for new-build properties is designed to help those with 5% deposits get on the housing ladder. The Government lends up to 20% of the property price and after five years the purchaser starts paying interest on the loan. The scheme was due to end in 2021, but it was announced in the Autumn Budget that it has been extended until 2023. However, the scheme is now only open to first-time buyers and lower regional price caps will be applied.

Premium bonds

With a return rate comparable with regular savings accounts (currently 1.40%), Premium Bonds (PBs) remain one of Britain’s most popular ways to save.  Currently, the minimum amount of PBs that can be purchased is £25 and the maximum that may be held is £50,000. It is now permissible for anyone over the age of 16 to buy PBs on behalf of children. The odds of winning a prize in any one month are currently 24,500 to one. There are currently two £1m prizes, five £100,000 prizes, and ten £50,000 prizes each month.

Although Premium Bonds are not strictly an ‘investment’, they can be encashed at any time with the full amount of invested capital being returned – and in the meantime, any returns by way of ‘winnings’ will be tax-free. ISAs

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