Help to Buy ISAs
The Help To Buy ISA is a tax-free savings account which offers valuable additional benefits to individuals saving to buy their first property.
What are the benefits?
Like a traditional Cash ISA you will receive tax-free interest on your savings. In addition, the state will add a 25% tax-free bonus to the amount saved (including interest) when the ISA is used as a deposit on a property.
What are the rules?
You must be 16 or over, UK resident and you must never have owned an interest in a residential property, inside or outside the UK, whether it was bought or inherited.
You can save up to £1,200 in your first month and then a maximum of £200 per month after that. You don’t have to pay in every month but, if you miss one or more contributions, you’re still restricted to £200 per month
In future months.
You need to have saved at least £1,600 to be eligible for the tax-free bonus. The maximum bonus available is £3,000 (on total savings of £12,000).
The bonus is only available on purchases up to £250,000 (or £450,000 in London)
Are these savings safe?
Help To Buy ISAs are savings accounts so there is no investment risk. All deposits are covered by the Financial Services Compensation Scheme (FSCS) up to £75,000 per individual per institution.
Can I get at my savings?
You may withdraw money from your Help To Buy ISA at any time but your future contributions are still limited to £200 per month.
When can I open a Help To Buy ISA?
These plans were first made available on 1st December 2015 and new plans will be available until December 2019. The bonus will be available as long as the plan is used for a deposit by 1st December 2030.
Are my normal ISA allowances affected if I open a Help To Buy ISA?
The Help To Buy ISA is classified as a Cash ISA and you are only allowed to contribute to one Cash ISA in a financial year. So, if you have paid into a Cash ISA since April 2015 and you want to open a Help To Buy ISA before April 2016 you will have to transfer this year’s Cash ISA into a Help To Buy ISA.
If the amount in this year’s Cash ISA is more than £1,200 you will have to transfer the surplus into a Stocks & Shares ISA or a non-ISA account UNLESS your chosen provider offers a “Portfolio” ISA which allows you to save into a Cash ISA and a Help To Buy ISA inside the same wrapper. At the time of writing only Nationwide and Aldermore offer this option.
You may contribute to a Stocks & Shares ISA at the same time as a Help To Buy ISA subject to maximum combined contributions of £15,240 for 2015/16.
If you have any type of ISA from a previous tax year it does not affect any of the current year’s allowances.
You may only ever have one Help To Buy ISA at a time but you may transfer between providers. If you have closed a Help To Buy ISA in the past without claiming the bonus you may open a new account.
What if I plan to buy a property jointly with someone else?
The Help To Buy ISA is an individual account and cannot be opened in joint names. If you are planning to buy jointly you may both open your own Help To Buy ISA if you are both eligible, or just one of you if the other is not eligible.
Do I have to live in the home I am buying?
To be eligible for the 25% tax-free bonus the property you are buying must be your only home and cannot be rented out or used as a holiday home.
The one exception to this is for members of the armed forces and their spouses or civil partners. If you intend to use the property as your main residence, then you will still be eligible for the scheme, even if you are unable to live in it as your main home when you first purchase it. When you first purchase your property, you will be able to rent it out until you are able to move in.
Can I buy a property without a mortgage?
No. The property you are buying must be mortgaged to be eligible for the 25% tax-free bonus. You do not have to be on the mortgage but your name must be on the Title Deeds.
Which providers offer the Help To Buy ISA?
At present there are 14 providers offering these plans:
You should check the terms and conditions of each individual plan before applying.
If you have never owned a property then the Help To Buy ISA is definitely worth considering. The Halifax is currently offering an interest rate of 4% which is head and shoulders above any and all instant access savings accounts. And, of course, it’s completely tax-free. The 25% tax-free bonus is the icing on the cake if and when you purchase a property.
Risk-free alternatives to consider are the regular savings accounts offered by the likes of First Direct (6% up to £300 per month), HSBC or M&S (6% up to £250 per month – terms and conditions apply) and Nationwide (5% up to £500 per month – terms and conditions apply). But these accounts are only offered for 12 months at a time, the interest is taxable and there is no prospect of a tax-free bonus.
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