InvestmentsJan 20 2016

A leg up the ladder

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A leg up the ladder

Help to Buy: Isas were launched on 1 December.

A Help to Buy: Isa is an Isa for first-time buyers whereby the government will pay a tax-free bonus of 25 per cent on savings towards the purchase of the saver’s first home, subject to minimum and maximum amounts.

The Tax Incentivised Savings Association welcomes this initiative as it will help young people get on the property ladder. It has proved popular with investors, with 142,000 accounts opened in December, representing £120m. That is equivalent to 1.4 per cent of all Cash Isas opened in the last tax year.

The Help to Buy: Isa is a Cash Isa, subject to existing Cash Isa rules, but there are also additional rules specific to the Help to Buy: Isa and for claiming and using the government bonus.

Help to Buy: Isas will only be available until 30 November 2019. Savings can still be made after that date, but the scheme has an end date of 1 December 2030, by which time any bonus must be claimed.

Not all Isa managers offer a Help to Buy: Isa.

The lay points to be aware of are:

Isa rules

■ Help to Buy: Isas can only be held by first-time buyers.

■ Only one Help to Buy: Isa can be held at any time (if the investor has previously held a ■ Help to Buy: Isa and closed it without claiming a bonus they can open a new one).

■ A maximum of £200 can be paid into the Help to Buy: Isa each month (a month for these purposes is defined as a whole calendar month, from the first to the last day of that month).

■ An extra £1,000 can be paid into the Help to Buy: Isa in the month it is opened (this means a total of £1,200 can be saved in first month, made up of the £1,000 opening payment plus the £200 monthly payment).

■ Any money withdrawn cannot be replaced without counting towards the payment limits (the flexible Isa rules will not apply to the Help to Buy: Isa).

■ There is no limit to the total amount that can be saved over time from payments made into a Help to Buy: Isa but the bonus claim is subject to minimum and maximum amounts.

■ A different Cash Isa cannot be subscribed to in the same tax year as a Help to Buy: Isa (unless the Isa manager is offering a portfolio approach which allows for multiple products to be held in one Cash  Isa).

Isa transfers

■ A Help to Buy: Isa can be transferred to another Help to Buy: Isa or to a non-Help to Buy: Isa.

■ Money can be transferred into a Help to Buy: Isa from a non-Help to Buy: Isa but it is subject to the maximum payment amounts (£1,200 in the month of opening and £200 per month thereafter) and to existing Isa rules.

■ A current year Isa can only be transferred in full, so before a transfer could be completed the value of any current year Isa would have to be reduced to within the maximum payment amounts.

■ Money can be transferred into a Help to Buy: Isa from a previous year non-Help to Buy: Isa without it counting towards the annual Isa allowance (although it will count towards the maximum payment amounts).

Bonus rules (claim)

■ The minimum bonus payable is £400 (based on a Help to Buy: Isa minimum value of £1,600).

■ The maximum bonus payable is £3,000 (based on a Help to Buy: Isa maximum value of £12,000).

■ Only one bonus can be claimed per investor.

■ The value of the Help to Buy: Isa at closure is used to calculate the bonus amount (including any interest earned on savings).

■ The bonus must be claimed within 12 months of closing the Help to Buy: Isa, through an approved solicitor or conveyancer.

Bonus rules (house purchase)

■ The entire bonus must be used towards the purchase price of the property (the Help to Buy: Isa savings, however, do not).

■ The property being bought must be purchased with a mortgage (which can be taken with any provider).

■ The property being purchased must be in the UK.

■ The maximum property purchase price in London is £450,000 – elsewhere in the UK it is £250,000.

■ The investor must live in the property (it cannot be rented out) – although there are special exceptions for members of the armed forced serving overseas.

■ The Help to Buy: Isa investor must be named on the title deed (but does not have to be named on the mortgage).

■ Help to Buy: Isa investors purchasing a property together can each claim a bonus on their Help to Buy: Isa savings (as long as each investor is named on the title deed).

■ If the house purchase falls through, the investor can reinstate their Help to Buy: Isa (up to the value of the Help to Buy: Isa at closure).

Other points to note are:

■ All subscriptions to a Help to Buy: Isa count towards the annual Isa allowance (£15,240 for 2015/16 and 2016/17).

■ As the Help to Buy: Isa is a Cash Isa, an investor can still subscribe to a Stocks and Shares Isa and/or an Innovative Finance Isa in the same tax year as a Help to Buy: Isa.

■ Where monies are paid into a Help to Buy: Isa from the transfer of a previous year Isa, this is not a subscription and does not count towards the annual Isa allowance, and would not use the Cash Isa subscription allowance for the tax year (meaning the investor could still subscribe to a Cash Isa in that tax year).

■ Any unused allowance from the monthly or opening payment limits cannot be carried forward.

■ As the bonus is paid on the value of the Help to Buy: Isa at closure, any money withdrawn before closure will not qualify for any bonus calculations.

■ A Help to Buy: Isa can be closed by either a closure request or by transfer to a

non-Help to Buy: Isa.

■ When a Help to Buy: Isa is closed, the Isa manager will send the investor closing documents which must be provided to the solicitor or conveyancer if the investor wishes to claim a bonus. This process will take some time, and the investor should inform their solicitor or conveyancer that they will be using a Help to Buy: Isa for advice on timing.

Bonus calculation

The table below shows indicative bonus amounts that can be claimed based on the Isa value at closure.

Isa balanceBonus amountNotes
Less than £1,600£0Minimum bonus is £400
£1,600£400
£5,000£1,250
£12,000£3,000
More than £12,000£3,000Maximum bonus is £3,000

For more information on the Help to Buy: Isa scheme go to: www.helptobuy.gov.uk

Claire Cornell Johnson is technical manager of Tisa

Key points

A Help to Buy: Isa is an Isa for first-time buyers whereby the government will pay a tax-free bonus of 25 per cent on savings towards the purchase of the saver’s first home.

The value of the Help to Buy: Isa at closure is used to calculate the bonus amount.

If the house purchase falls through the investor can reinstate their Help to Buy: Isa.