With the introduction of the Help to Buy ISA from the first of December, we thought it might be useful to summarise its main rules and workings. The government’s Help to Buy website covers details of the Help to Buy ISA as well as the other Help to Buy schemes (the Help to Buy ISA can be used alongside the other government schemes).
Who is the Help to Buy ISA available to?
Any UK resident, aged 16 plus, with an NI number, who has never owned a property in the UK or overseas. It is available on an individual basis, so the eligible individual could be intending to buy their first property with someone who isn’t themselves eligible for the Help to Buy ISA. If the property will be purchased by more than one person, they can each have a Help to Buy ISA to go towards the property purchase as long as they each meet the eligibility conditions.
How much can be saved?
Up to £200 per calendar month plus up to £1,000 as a lump sum in the first calendar month (ie. £1,200 could be invested in month 1 followed by £200 each month from month 2 onwards). The government bonus is 25% of the total amount saved by the individual. A total investment of £12,000 would achieve the maximum government bonus of £3,000. A minimum of £1,600 must be invested to receive any government bonus (at this level a £400 bonus would be received).
As the monthly allowance is per calendar month if, for example, the Help to Buy ISA account was opened on 28th March, the individual would have until 31st March to make any deposits up to the first month’s limit of £1,200. They could then deposit up to £200 any time between 1st – 30th April and in all following calendar months.
As long as the provider’s terms and conditions allow it, it’s possible to make multiple deposits of up to £1,200 in total in month 1, and up to £200 in following months.
A person doesn’t have to contribute in each calendar month but no more than £200 (or £1,200 in month 1) can be contributed in any calendar month, e.g. if someone pays nothing in June and July they can still only contribute £200 in August.
The £1,200 maximum in month 1 only applies when a Help to Buy ISA is first opened. Even if the full amount wasn’t contributed in month 1, it isn’t possible for it to be used in a new Help to Buy ISA following a transfer of the original ISA.
When is the government bonus paid?
When the individual is in the process of buying their first home, their solicitor or conveyancer will apply for the government bonus (the solicitor or conveyancer needs to register with the Help to Buy scheme before they can apply for the bonus). The solicitor or conveyancer can’t charge more than £50 + VAT to process the bonus application.
What if the individual has already paid into a cash ISA in the current tax year?
At least the current tax year subscriptions to the existing cash ISA will have to be transferred to the Help to Buy ISA. Up to £1,200 can be transferred into the Help to Buy ISA and anything over this amount would have to be moved into a stocks and shares ISA or a non-ISA account.
Some portfolio ISAs allow multiple ISA products to be held within a cash ISA wrapper. It’s still only possible to have one active cash ISA but it can be made up of one or more standard cash ISA products, including a Help to Buy ISA. With a portfolio ISA, it’s possible to save into a cash ISA and a Help to Buy ISA at the same time – the standard cash ISA and Help to Buy ISA allowance limits will still apply.
It’s possible to continue to save money into a stocks and shares ISA as well as having a Help to Buy ISA.
Can a stocks and shares ISA be transferred into a Help to Buy ISA?
Some providers (but not all) will allow a transfer from a stocks and shares ISA into a Help to Buy ISA but this is limited by the fact that the maximum initial Help to Buy ISA subscription is £1,200 followed by £200 pm, and current year ISA subscriptions must be transferred in full (previous years’ subscriptions can be transferred in whole or in part – product permitting).
What conditions apply to the property being purchased?
To qualify for the Government bonus, the property must:
- Be in the UK
- Cost up to £250,000 (up to £450,000 in London)
- Not be a second home or a buy-to-let property
- Not be rented out after purchase
- Be purchased with a mortgage (the Help to Buy ISA accountholder doesn’t have to be on the mortgage but their name must be on the Title Deed of the property)
How many Help to Buy ISAs can a person have?
Only one at any one time. Unlike a standard cash ISA, a new one can’t be opened every year. The Help to Buy ISA can be transferred from one bank or building society to another.
Can withdrawals be made from the Help to Buy ISA?
Withdrawals can be made at any time but future contributions remain limited to £200 per calendar month.
Does the interest added to the ISA account count towards the government bonus?
Yes – the government bonus is calculated on the closing balance of the ISA account and includes contributions and interest (the maximum government bonus is capped at £3,000).
How long are Help to Buy ISAs available for?
Until 30th November 2019. After that date they will be closed to new savers but existing savers can continue their contributions. The government bonus must be claimed by 1st December 2030.
As well as the Help to Buy website, the government has published consumer-facing guidance that you may find useful. It can be accessed by clicking here.
Contact one of our mortgage specialists to arrange a consultation to discuss your options.
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