Sponsored content - New savings incentives could give helping hand to first-time buyers and tax credit claimants in Suffolk
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January is a difficult month, and saving is the furthest thing from your mind as you pay off the inflated credit card bills and eek out December’s pay packet.
Saving, however, is about to get easier for some as the government start to move away from offering tax breaks on pension savings which are proving costly to the treasury.
David Cameron first spoke about the new incentives a year ago and now, following his autumn statement, Chancellor Philip Hammond has made the details clearer.
“The government are trying to help people across the whole social scale to save,” explained Keith Senior, of Jacobs Allen Chartered Accountants and Chartered Tax Advisers.
“The Help to Save account will be introduced in April 2018 for those who are claiming working tax credits. If families commit to saving £50 a month for a minimum of two years then the government will contribute 50% to that account.”
Mr Senior added: “It might be difficult for someone on such a low level of income to afford to save but if they can sustain the £50 a month payments into a savings account, it will be a lucrative option.
“Perhaps their parents may be in a position to help them save, knowing that the government will then top up the savings account?”
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The bonus of this scheme for the Government is that very few will be in a position to take it up.
Meanwhile, those looking at longer-term nest eggs are being encouraged to consider the Lifetime ISA.
“Anyone between 18 and 40 can save up to £4,000 a year in a Lifetime ISA and the government will contribute 25% of what is saved, which gives you a fantastic return.
People are used to getting tax relief on their pension contributions. You don’t see that full tax relief with these ISAs but the benefit with these is that money saved grows in a tax free environment and when you draw the money out it is not taxable.”
The government are only offering top-up payments on a maximum of £4,000 but savers can put away as much as they choose.
Mr Senior said: “The government is encouraging people to look at long term planning so you won’t be able to withdraw funds from this account unless you are 60-plus or you are putting the money towards the purchase of your first home.
“A withdrawal for any other reason will mean forfeiting the government contribution plus 5%.”
He explained that those saving for a home could contribute £4,000 at the end of one tax year and a further £4,000 at the start of the next, effectively giving them an additional £2,000 within a matter of weeks. The total of £10,000 (rather than £8,000 without the scheme use) could then be used towards the deposit on a first home.
And for those looking at it as a retirement fund, it is a long term investment with guaranteed short term rewards – which could be more appealing than a traditional pension which could fluctuate.
“For the government, it is an affordable way of incentivising retirement provision for many people because they are not offering full tax breaks at the point of earning and it will also help encourage people to put money aside for a time when the government is potentially no longer able to afford to offer the same level of state retirement pension.”
For more detailed advice on the tax effect of savings, investments and starting a business, speak to the experts at Jacobs Allen.