Maximise government help with your savings


Feb 08, 2017


Personal Finance

It’s not easy to make savings in the current climate, so it pays be to fully aware of any government help and tax reliefs to enable you to maximise your savings wherever possible.

Lifetime ISAs

From April 2017, adults under the age of 40 will be able to open a Lifetime ISA (LISA) and pay in up to £4,000 each tax year. They will be able to continue making contributions up to the age of 50. The government will add a 25% bonus to these contributions. This means that individuals who save the maximum will receive a £1,000 bonus each year from the Government.

These tax-free funds, including the Government bonus, can be used to help buy a first home worth up to £450,000, at any time from 12 months after first saving into the account. The funds, including the Government bonus, can also be withdrawn from the LISA tax-free for any purpose from the age of 60 onwards. LISA holders will also be able to access their savings if they become terminally ill.

If savers make withdrawals before age 60 for other purposes a 25% charge will apply to the amount of withdrawal. This essentially returns the bonus element of the fund (including any interest or growth on that bonus) to the Government.

Help to Save

“Help to Save”, which is another scheme aimed at supporting people on low incomes to build up their savings, will then follow in 2018. That scheme will add a 50% Government bonus onto individual savings (up to a value of £50 a month) for up to four years. Help to Save will be available through National Savings & Investments to any adult who is receiving working tax credit or universal credit, with minimum household earnings equivalent to 16 hours a week at the National Living Wage.

Cash ISA allowance

The current ISA allowance is £15,240, rising to £20,000 for 2017/18. Remember that there is no longer a 50% restriction on the amount that you can invest into a cash ISA. The £15,240 annual limit now covers all ISA investments whether they be in the shape of shares, bonds, cash or certain other investments.

Pension payments before 6 April

The current annual pension limit remains at £40,000. On top of this, unused relief from the previous three tax years may be used once the current £40,000 limit has been used up. However, the relief available from the 2013/14 tax year will lapse on 6 April 2017.

If, for example, you have £10,000 unused allowance from 2013/14 then you would need to make pension contributions of at least £50,000 by 5 April 2017 to avoid losing your 2013/14 relief. Remember also that pension savings continue to qualify for higher rate tax relief and may help to reduce your payments on account. If you are contemplating making a substantial pension contribution this tax year it may be as well to consider doing so ahead of any changes that might be announced in the Budget due on 8 March.

If you’d like to discuss how to maximise tax relief on your savings please get in touch.