December 8th 2015

The keenly anticipated Help to Buy ISA finally arrived on the 1st December 2015. But who can open one and what does the account offer that other ISA’s don’t?

The Help to Buy ISA (HBISA) differs from others in that it was created with just one group of investors in mind: first time home buyers. No one else is entitled to open one, the main reason for this is that unlike other ISA’s the incentive is more than just tax free interest, the government will pay a tax free bonus.

Who can invest?
Help to Buy ISA’s are strictly for first time buyers who:
•    Are 16 or over
•    Have a valid NI number
•    Are a UK resident
•    Don’t have an active cash ISA

Top tip
You can open a HBISA if you’ve invested in a cash ISA, but you’ll have to stop paying into it and transfer up to £1,200 of the cash into the HBISA. Any remaining cash in the ISA must be moved to one or more stocks and shares ISAs or paid into a non ISA account.

Who counts as a first time buyer?
The government defines a first time buyer as anyone who hasn’t owned a freehold or leasehold (exceeding 21 years) of a property that “comprises a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use”. The definition is slightly different for those who live in the UK outside of England and Wales, but it has the same meaning.

Can we have a joint account?
HBISA accounts are for individuals only, but a couple can each have one meaning that they can both qualify for the maximum government bonus.

When is the bonus paid?
The bonus isn’t paid until the money in the HBISA is used towards buying a qualifying property. Solicitors will issue the account holder with a special statement for signature before completion confirming they meet all the conditions. The bonus is only paid where the money in the HBISA is used to buy a home costing up to £450,000 in London or £250,000 outside, and it must be bought with the aid of a mortgage.

How much is the bonus?
The bonus is 25% of the amount in the HBISA plus interest, but none will be paid unless there’s at least £1,600 in the account. The maximum bonus is £3,000.

How much can I pay in?
You can pay up to £200 per month into an HBISA, but in the month you open it you can pay in an extra £1,000. You can continue to pay into the account even when the maximum bonus has been earned. Tip. While parents can’t hold HBISA accounts in their name on behalf of their children, they can pay into them, subject to the monthly maximum.

In summary
If you are saving to buy your first home and save money in a Help to Buy ISA, the government will boost your savings by 25%. So, for every £200 that you save you will receive a government bonus of £50. The maximum government bonus you can receive is £3,000.
Remember you must be at least 16 and resident in the UK. The government will add a bonus of 25% of the amount in the HBISA up to a maximum of £3,000 when you use the money to buy a property for £250,000 or less (£450,000 in London). Couples can hold one account each and so earn a bonus of up to £6,000.

Act now
Help to Buy ISA’s can be opened until 30 November 2019, but after that new accounts won’t be available. Therefore, if you intend helping your child to buy their first home, get them to set up a HBISA soon so you can maximise the bonus.
The Help to Buy ISA is available from a range of banks and building societies.

JRW Chartered accountants in Edinburgh, Galashiels, Hawick, Langholm and Peebles.