Top Help to Buy ISA guides

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Help to Buy ISA versus Lifetime ISA

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How does a Help To Buy ISA work?

How to transfer a Help to Buy ISA to a Lifetime ISA

Although you can have both a Help to Buy ISA and a Lifetime ISA at the same time there’s no problem if you want to transfer a Help to Buy ISA to a  Lifetime ISA(LISA) although you will only get the bonus on one of them when you buy your first home.

However, you can only transfer up to £4,000 – your annual LISA limit – in every year. Money you’ve already paid into your LISA is counted toward this limit. For example, if you had already saved £1,500 in your LISA then you can only transfer in £2,500 from your Help to buy ISA.

How does a Help to Buy ISA work?

The Help to Buy ISA is a Government sponsored product which aims to help people who want to save for a house. This ISA allows you to save up to £200 a month, after an initial deposit of up to £1,200. Once you've saved at least £1,600, a Government bonus will kick in and you will get an extra 25% on whatever you manage to save, up to a maximum of £3,000.

This means for every £1 you save in a Help to buy ISA the government will top your funds by 25p – this is a tax-free bonus. 

Help to Buy ISAs are now closed to new savers, but existing holders of a Help to Buy ISA account can continue to save until November 2029 but must claim their bonus by 1 December 2030. Lifetime ISAs are an alternative way to save tax-free and with a Government bonus.

Features of Help to Buy ISAs:

  • You can save up to £200 per month in a Help to buy ISA. You’ll need to have at least £1,600 in the ISA before you qualify for the 25% government bonus.
  • When you’re in the process of buying your first home your solicitor or conveyancer will apply for the government bonus you are due. This sum is added to the money in your account which, in turn, goes toward the money you are putting up for your first home. It’s important to note that the government bonus can’t be used for the deposit or to pay any fees such as legal costs.

How do I open a Help to Buy ISA

Help to Buy ISAs can no longer be opened, but there is an alternative government-backed scheme for first time buyers called the Lifetime ISA. This also offers a 25% bonus on money saved into the account.

While no new accounts can be opened, if you see a Help to Buy ISA that offers a better rate than the one you currently hold, it's possible to transfer your current funds over to it. Contact the provider you want to move to so they can set things in motion through the proper channels. Do not take the money out of your ISA as you would not be able to open a new account with the funds.

You can also transfer the Help to Buy ISA to a Lifetime ISA.

 

What are the restrictions?

There are of course some restrictions to this Government scheme. To get the Government bonus, the home you're buying needs to be in the UK, cost no more than £250,000 (£450,000 in London), be purchased with a mortgage and not be rented out (though you may be able to change your property to a buy-to-let investment later down the line).

If you've already opened a cash ISA in the current tax year (which runs from April to April), you'll only be able to transfer those funds, and even then only up to £1,200, into a Help to Buy ISA; you won't be able to open an additional active account as these are no longer allowed.

Things to consider

There are certain things you cannot do with a Help to Buy ISA, such as buying a first home for the purposes of renting it out, using the Government bonus for any reason other than to buy a home and getting the bonus if you've already bought a house. It's important to be aware of the limitations surrounding Help to Buy, to make sure you can get the most out of it.

However, there's nothing stopping you from withdrawing your money out of a Help to Buy ISA if you decide not to buy a house. And the interest rates offered on these ISAs can rival or even beat their regular cash ISA counterparts. So, if you are eligible, why not give it a try?

Even if you're just half a year away from buying your first home, by saving the maximum you'd still be able to get a £550 Government bonus, plus any interest you manage to accumulate. And once you've saved up enough to get the maximum Government bonus, there's nothing stopping you from looking around to see if there's a better savings account out there wherein you can keep saving.

While having the Government bonus added only upon completion can make things a bit awkward during the exchange stage of buying your first home, it also means that it's harder to lose the bonus. If you've closed the account to buy your first property and the sale ends up falling through, you will be able to reopen your ISA and save the bonus for when you do successfully complete a house purchase. Note that your solicitor will need to fill in a purchase failure notification for you to show that your purchase did not complete, and that you can't use the funds to open a different account.

Find out more about stocks & shares ISAsLifetime ISAs and cash ISAs, so you know which one is right for you.

Best Help To Buy Rates

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