By Lyndsey Hall
The Help to Buy ISA will allow prospective buyers to deposit up to £200 a month into a tax-free savings account, with the government topping up these savings by 25%, up to a maximum bonus of £3,000.
New accounts will be available to over 16s from December 1st 2015 until November 30th 2019; they won’t be available to new savers after this date, but if you opened an account before then you will be able to keep saving into your ISA. You can make an initial deposit as high as £1000, and you will receive a minimum bonus of £400 as long as you have saved at least £1,600 into the account before closing it. Your bonus must be claimed by December 1st 2030, so you’ve potentially got 15 years to save for a deposit.
The savings can be used to purchase a property worth up to £250,000, or £450,000 in London. If you will be buying the property jointly with another person, you can both open separate accounts and each receive the full bonus, meaning you could earn as much as £6,000 as a couple.
There are 5 steps to take to make the most of the new ISA:
- Save money for your deposit into the Help to Buy ISA.
- Close the account when you are ready to purchase a property; you will then receive a closing letter.
- Give the closing letter to your solicitor.
- The solicitor will then apply for the government bonus.
- The bonus will be transferred to your solicitor, who will use it to complete the purchase of your home.
The bonus will be calculated based on the amount of money you have saved, including any interest accrued. Unfortunately, the bonus can only be used to pay all or part of your deposit, it can’t be put towards any other costs, such as legal fees.
Six banks and building societies have signed up to the Help to Buy ISA so far, including Virgin Money and NatWest, who will be offering the ISA from December 1st. Barclays, Halifax, Lloyds, and Bank of Scotland have all confirmed they will be launching the product, but have not announced a date as of yet.
With the majority of first-time buyers receiving help from parents or grandparents, why not consider funding your child or grandchild’s Help to Buy ISA? If you have already used your own annual ISA limit it could be a clever way to keep even more of your money out of the taxman’s reach. The account would need to be in your child or grandchild’s name, but you can pay into it and help them save for their future home, whilst reducing your inheritance tax bill at the same time! You’re allowed to gift £3,000 per year, which fits perfectly with the four year minimum timeline as you could give your family member the £12,000 maximum contribution, which will be boosted to £15,000 by the government.
Even if you are not ready to get onto the property ladder yet, the Help to Buy ISAs are likely to have very attractive interest rates, as banks will want to tempt customers to save in the hopes that they will take out mortgages with them. You can access the money at any time, so if you need it for something else you can just dip in and out, but you will only receive the bonus when you purchase a property, and the amount you receive will be based on the amount left in the account upon closure.
Will you be taking advantage of the new Help to Buy ISA, either for yourself or your kids? We’d love to hear your thoughts on the government’s latest initiative to help first-time buyers get onto the property ladder. Leave us a comment or join the conversation on Facebook and Twitter.
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