The door is about to close on the Help to Buy ISA

The Help to Buy ISA will no longer be accepting new applications after 30 November 2019.  If you want to take advantage of this you should act quickly to ensure that you open an account before the deadline.

The Help to Buy ISA was introduced by the Government to help first time buyers to save towards the cost of their new home. The Government provides a 25% bonus on your ISA savings, up to a maximum of £3,000. If you are buying a home with someone else they can also take out their own Help to Buy ISA, which potentially increases the Government bonus to £6,000.

To be eligible the house must have a purchase price of up to £250,000 (£450,000 in London), be the only house that you own and be where you intend to live.

Your first payment to the ISA can be up to £1,200 and you can contribute up to £200 each month. When you purchase a property the solicitor or conveyancer will apply for your 25% bonus.  If you don’t use the funds to buy your first property you will never be able to claim the bonus.

A minimum of £1,600 must be saved before you can claim the Government bonus.

The table below demonstrates the potential bonuses available to investors:

Savings                               Bonus                   Total

£1,600 (minimum)           £ 400                     £2,000

£5,000                               £1,000                   £6,000

£12,000 (maximum)       £3,000                   £15,000

A Help to Buy ISA can be set up with a deposit as little as £1 and many of the mainstream banks offer this type of account.  If you open an account before the deadline of 30 November 2019 you will be able to contribute to the ISA until December 2030.

The Lifetime ISA – a better alternative?

The Help to Buy ISA is being pulled by the Government as in many cities, particularly London, the £3,000 bonus is relatively insignificant when buying a new house.  An alternative Government-backed ISA, the Lifetime ISA (“LISA”), was introduced in 2017 and offers more flexibility on contributions along with a higher bonus of up to £32,000.  However, to achieve the maximum bonus the individual must contribute £4,000 per year between the age of 18 and 50.  In a similar fashion to the Help to Buy ISA, the Government bonus is 25% per annum.  Therefore, if the maximum LISA contribution of £4,000 is made during the tax year, a bonus of £1,000 will be added.

The LISA can only be opened by individuals between 18 and 39 years old, but once open contributions can be made until age 50.  If the LISA is not used to purchase a property the funds cannot be accessed until age 60.  However, the bonus is added to the account straight away, boosting your savings immediately.   Furthermore, unlike the Help to Buy ISA – which is a Cash ISA – you can invest in Stocks and Shares through a LISA.

Summary

The ISA account that you choose will largely depend on your personal circumstances. If you are looking to buy a property in the next year or so the Help to Buy ISA might be preferable as a Lifetime ISA cannot be used penalty-free within the first 12 months of opening the account.

However, the Lifetime ISA gives individuals the opportunity to a obtain a bigger bonus than the Help to Buy ISA both annually and over a longer period, with the option of investing in Stocks and Shares rather than cash only.

 

Photo by Terrah Holly on Unsplash