How Help to Buy ISAs work
Last updated on 1 December 2015
Help to Buy ISAs offer a new way for first-time buyers to save up for a deposit.
They’re offered by banks and building societies and in many ways work just like ordinary savings accounts. But importantly any interest you earn is tax free and the Government will top up your contributions and interest by 25%, up to a maximum bonus of £3,000.
Who can get a Help to Buy ISA?
If you’re a UK resident aged 16 or over, you can qualify for a Help to Buy ISA.
The last date for opening an account is 30 November 2019. Once you have an account, you can continue to save beyond this date but you must claim your bonus by 1 December 2030.
The bonus can only be used towards a deposit on homes worth up to £450,000 in London or £250,000 elsewhere. You must be going to live in the property you buy (although there are some exceptions for the armed forces which allow you to rent out the property initially). And you must be buying a property with a mortgage to qualify for the bonus.
How much can you save?
In the first calendar month of opening an account, you can pay up to £1,200 into the account. After that you can save up to £200 a month.
If you don’t pay in the full £200 in one month, you can’t carry this forward to the next month. So, if you pay in £50 in month one, you can still only pay in a maximum of £200 in the following month.
You can take money out of the account but your monthly allowance for paying in won’t change. For example, if you pay in £200 in March and take out £50 in the same month, you’ll have to wait until the following month before you can pay in any more.
How does the government bonus work?
When you come to buy your new home, you tell your ISA provider that you want to close your Help to Buy ISA. You’ll receive a closing letter to pass to your solicitor which they use to apply online for the bonus. The bonus is then transferred to your solicitor and used towards the cost of the property.
The minimum bonus you can have is £400. So, if you close your account with less than £1,600 saved you won’t get a bonus at all. The maximum bonus is £3,000 on £12,000 of savings.
Couples buying a property together can both qualify for a Help to Buy ISA as long as they’re both first-time buyers, meaning they can get a bonus of up to £6,000.
Who offers Help to Buy ISAs?
A range of banks, building societies and credit unions will offer Help to Buy ISAs. It’s important to shop around for the one that best suits you. As well as looking at the interest rate, check out other features too such as whether they let you pay into their cash ISA at the same time (see, I’ve already got a cash ISA, can I still qualify?’ below).
You can only have one Help to Buy ISA (you can’t open a different one each tax year) but you can switch to a different provider at any time.
You don’t have to get your mortgage with your Help to Buy ISA provider.
I’ve already got a cash ISA, can I still qualify?
The rules here can be a bit confusing. Here’s what you need to know:
If you haven’t opened a cash ISA this tax year but have one from a previous tax year you can open a Help to Buy ISA.
If you’ve paid into a cash ISA any time after 5 April 2015, the general rule is that you can’t open a Help to Buy ISA in the same tax year. But there are ways around this:
- You can transfer your cash ISA to a Help to Buy ISA. For example, if you’ve got £5,000 in a cash ISA, you can transfer up to £1,200 of this to your Help to Buy ISA. You’ll then need to find somewhere else to put the remaining £3,800 – you can choose either a stocks and shares ISA or any non-ISA account (from April 2016 the new Personal Savings Allowance comes in which means basic-rate taxpayers can earn up to £1,000 of interest tax-free a year and additional-rate taxpayers can earn £500).
- Some Help to Buy ISA providers, such as Nationwide, NatWest and Ulster Bank, will let you pay into their own cash ISA and a Help to Buy ISA at the same time, up to the £15,240 annual ISA limit.
I’ve got a stocks and shares ISA, can I still qualify?
Yes, you can continue to pay into a stocks and shares ISA and open a Help to Buy ISA.
Can I use the bonus for anything else?
No, you’ll only get the bonus when you buy a property and it must be put towards the deposit. You can withdraw your money at any time but you won’t qualify for a bonus.
For more information about the Help to Buy ISA and the other Help to Buy schemes, see the government’s Help to Buy website.