Help ‘me’ to Buy my first home ISA!

LISA house

According to a recent Government press release, more than 1.2 million people have opened a Help to Buy ISA account. The latest Government statistics show that:

  • the average Help to Buy bonus claim has reached £800, a new record; and
  • 146,753 property completions have been supported by the scheme, which has helped to finance properties worth £25.3 billion in total.

The Government introduced the Help to Buy ISA in the 2015 Budget. It’s available to UK residents over the age of 16 for a temporary period of four years, which started in December 2015 and ends in November 2019.

Savers can open accounts with an initial deposit of up to £1,200 and are then able to save up to £200 a month. They can receive a tax-free Government bonus equal to 25% of the amount saved (including interest) when funds are paid on completion of the purchase of a first home costing up to £250,000 (£450,000 in London).

The Government contribution is capped at an overall maximum of £3,000 (i.e. on £12,000 of savings) and subject to a £400 de minimis amount, meaning that savers must save a minimum amount of £1,600 to receive any bonus.

Savers, can’t have another active cash ISA in the same tax year. If they have opened a cash ISA the same tax year, they can still open a Help to Buy ISA but will have to transfer £1,200 from their cash ISA to their Help to Buy ISA, and the balance of their cash ISA to another account. They can still save into a stocks and shares or portfolio ISA.

First-time buyers (and others saving for the long term) can also save through the Lifetime ISA, which enables those between the ages of 18 and 40 to save up to £4,000 in each tax year with the added benefit of the government providing a 25% bonus on the contributions paid in a tax year at the end of that tax year.

With 1.2 million investors, the Help to Buy ISA seems to be faring somewhat better than the Lifetime ISA.

The Government’s original Tax Information and Impact Note for the Lifetime ISA estimated over 200,000 accounts would be opened in the first year to 5 April 2018. However, in May, John Glen, Economic Secretary to the Treasury, confirmed that initial reports to HMRC for the 2017/18 tax year showed approximately 170,000 accounts were opened. Although, he did add that the Government expected the final figure for 2017/18 to change as a result of the receipt of late or amended returns from providers.

In answer to a call from one Labour MP to make an assessment of the potential merits of closing the Lifetime ISA to new entrants, Mr. Glen simply said

“The Government keeps all aspects of the tax system under review. Where appropriate, future changes may be made through the annual Budget process.”

There may well be more said on the topic of ISAs in the Autumn Budget. Of course, the idea of a new Care ISA has already been mooted by the Government. Please see my previous post.

The fact that Help to Buy ISAs are available for a 16-year-old, makes this a great first introduction into the world of ISAs with the intention of saving for a house purchase.  However, once you reach 18, the large contribution and subsequently bonus with a Lifetime ISA makes that a better choice for those 18 or over wanting to save larger sums for their property purchase.

 
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