The Government introduced the Help to Buy ISA on 1 December 2015. The aim was to assist first time buyers in making the expensive leap onto the housing ladder. As with other ISAs any money deposited in a Help to Buy ISA will not be taxed. A maximum of £200 per month can be saved, although in the first month you can save an additional £1,000. For every £200 saved the Government will pay you a £50 bonus towards the purchase price.
The Government tops up the contributions by 25% up to a maximum of £3,000. This 25% bonus is then used by the buyer to assist with the completion of their first property purchase.
This article highlights important points to note about the Help to Buy.
- Help to Buy ISAs are only available to use if you are purchasing your first home in the UK and if the purchase price is no more than £250,000 outside London and £450,000 in London. If the purchase price is more or if you are buying a second home or buy to let property the 25% bonus will not apply.
- The 25% bonus can only be used on completion of your purchase. A common misconception is to believe that it can be used to assist with the deposit. Quite simply, it cannot. The deposit payable on exchange of Contracts (typically 10% of the purchase price), must be funded separately, if you wish to use the 25% bonus on completion. However, once you have closed the account and obtained the closing statement from the ISA Manager you can use the sum you have saved yourself, towards the deposit.
- When closed, the ISA must have a minimum of £1,600 saved (therefore the minimum top-up is £400) and a maximum of £12,000 saved (the maximum top-up is £3,000).
- Unlike other schemes to help first time buyers, this scheme is not limited to the purchase of a brand new property.
- If you are saving to buy a property with someone else who is also a first time buyer they can also open their own Help to Buy ISA which means you can jointly earn a bonus of up to £6,000.
- If your purchase does not go through after you have closed your Help to Buy ISA you can re-open your account. Your solicitor will give you a document called a purchase failure notification. If you take this to your bank or building society they will re-open the account for you. You can then deposit your money as a lump sum.
- There is an exemption for members of the armed forces or their spouses. For members of the armed forces and their spouses or civil partners, if you intend to use the property as your main residence you are still eligible for the scheme even if you rent the property out until you are able to move in if you are unable to live in it when you first purchase it.
- The property you are buying must be mortgaged to be eligible for the bonus. However, you are free to take a mortgage with any provider; you are not tied to the Help to Buy ISA provider.
Who is eligible?
To qualify you must be a UK resident, aged 16 or over, have a valid national insurance number and be an individual who does not own and has never owned a home anywhere in the world. If you are the beneficiary of a trust you may not qualify and your solicitor will need to look carefully at your particular circumstances and advise you. If you are unsure as to whether or not you are eligible for this ISA, we recommend you also speak to the ISA provider so its terms and conditions are explained to you.
ISA closure – We strongly recommend that you tell your solicitor you have a Help to Buy ISA as soon as you instruct them. Once contracts have been exchanged and prior to completion of your purchase, there are steps to be completed in order to claim the bonus: you will need to close the account and send the closing letter issued by the ISA Manager to your solicitor together with the First Time Buyer Declaration Form confirming you are eligible to receive the 25% bonus. Your solicitor will then be able to apply for the bonus on your behalf.
Claiming the bonus – Once your Help to Buy ISA is closed, the 25% bonus must be claimed within 12 months.
Timing is important in using the Help to Buy ISA, and your solicitor will guide you. You should allow for a minimum of two weeks for the ISA to be closed and for the closing statement to be issued to you, and you should liaise closely with your solicitor to ensure the 25% bonus is claimed correctly.
New accounts are available until 2019 when the Government are withdrawing them from the market.