Help to Buy ISAs, launched by the Government in 2015, officially closed to new applications in 2019. If you opened one before the scheme closed, you can keep it open until November 30, 2029. If you are looking for a replacement for a Help to Buy ISA, then the Lifetime ISA is also designed for people buying their first home, or planning for later life.
What is a Help to Buy ISA?
Introduced by then-Chancellor George Osbourne, the Help to Buy ISA was a new type of ISA aimed at helping first-time buyers get on the property ladder.
Savers not only benefitted from tax-free interest on the money in their ISA, as with all types of ISA, but those savings were topped up an extra 25% by the Government, meaning potentially thousands of free pounds to be put towards a house purchase.
How does a Help to Buy ISA work?
With a Help to Buy ISA, it is possible to save up to £200 a month, tax-free, which will be eventually put towards the purchase of your first home. The Government adds a 25% bonus (to a maximum of £3,000) to what you have saved. This means that, for every £200 you save, the Government will add another £50 for free. And of course, you earn tax-free interest on the amount as well.
If you already have a Help to Buy ISA, you can keep saving £200 a month in it until 30 November 2029. You then have until 1 December 2030 – just over a year later – to claim the 25% bonus from the Government.
When it comes to getting the bonus, you need to have at least £1,600 saved to get any bonus (so you'd get a top-up of £400). As the maximum bonus is £3,000, any money you have saved in your Help to Buy ISA above £12,000 will not earn anything above the tax-free interest.
What happens if I don’t buy a house?
You won’t get the money from the Government. The 25% payout is only awarded on the purchase of a property. If you withdraw your money without a house, you’ll just receive the balance plus interest (like a conventional ISA).
What restrictions are there on a Help to Buy ISA?
You can’t apply if this isn’t your first home purchase – even if you don't currently own a home, you still don't count as a first-time buyer if you've owned one in the past – or if you plan to rent the property out.
What if I also want to open a Lifetime ISA?
The good news is that the ISA rules have changed to allow people to pay into more than one cash ISA in a tax year, so long as they don't exceed the total ISA allowance – which is currently £20,000. This is useful as Help to Buy ISAs, like Lifetime ISAs, count as cash ISAs, so you can continue saving into your Help to Buy ISA and also open a Lifetime ISA.
As with the Help to Buy ISA, the Lifetime ISA (known as LISA for short) has a 25% bonus if you use the savings towards a first home. If you're aged 18 to 39, you can open a LISA in addition to your Help to Buy ISA, but you can only use the bonus from one of them towards buying a home, so you can't get the bonus twice.
You can also switch your Help to Buy ISA to a Lifetime ISA but weigh up all the pros and cons before doing so to make sure you don't miss out. Check out MoneySavingExperts useful guide to whether you should switch.
What if I'm saving for a house with my partner?
The good news is that you can have a Help to Buy ISA each, so a couple each saving £200 a month into their individual ISAs could get a top-up of £6,000 from the Government when they buy a house.
