The Government’s Help to Buy ISA option is ending for new applications on 30th November 2019, to be replaced by the already existing Lifetime ISA. However, you can benefit from both if you or your loved ones take action before the November deadline. The rules are, as ever, quite complex so we will try and highlight a few key points of both schemes but please bear in mind this is an overview only.
Starting with the Help to Buy ISA, this allows any saver over the age of 16 to open an account specifically for the purpose of buying a first home. The key points are:
- £2400 can be saved each year with an extra £1000 in year one. This has to be done in monthly amounts
- Although the scheme ends this year, if you have an account open you can add to it for 10 more years
- The value of the first home you buy has to be below £450,000 in London, or £250,000 outside of the capital, and you have to buy using a mortgage
- The Government will add a 25% bonus to whatever you save up to a maximum of £3000
- ISA’s are an individual account, so a couple can both have one each
- If you do not end up using the funds for a house purchase, then you will lose the bonus
- You can use the ISA proceeds, and bonus, as soon as you have accumulated a minimum of £1600
- This is purely a cash plan only, not share based
We then come onto the replacement, which again is a good option worth considering; the Lifetime ISA. This has been designed to suit a wider range of needs with more generous benefits but as you would expect comes with a few caveats:
- You have to be aged 18 to 39 to open one
- Again, a couple can each have a plan and benefit
- The maximum you can invest each year is £4000 and you can continue to save right up until the day before you hit 50!
- The Government will add 25% to whatever you save and in theory the maximum bonus is £33,000
- This time you can use the cash to either buy a first mortgaged home up to £450,000 or you can access it at age 60 in full for whatever you like as this then becomes a retirement savings plan (which does not affect pension saving)
- You can choose either a cash option or stocks and shares (likely time and view on risk should decide)
- You can only access the bonus after the ISA has been open for 12 months
- If you choose to access your savings before age 60 and not for a house purchase, then the bonus will be lost and a penalty applied.
As we said, the rules, and hence the decision of which option is right for you, is not simple but please do not let this put you off. As a general rule of thumb, if you are aged between 18 and 39 and certain you will be buying a home that will qualify then the Lifetime ISA is probably right as it pays a more generous bonus. However, if you are not in that age bracket or not set on buying a home then the Help to Buy could be right. Also bear in mind that a Help to Buy plan can be transferred into a Lifetime ISA but not vice versa.
Finally, please remember the other areas of financial planning that are linked here, especially how a tax efficient pension could work better and then the balance of your £20,000 annual ISA allowance.
This article is written by Andrew Dunn.