The help to buy ISA is a relatively new type of savings account. Despite this, the scheme will close to new applicants on 30 November 2019. Why should you be bringing this deadline to your clients’ attention?
Background
The help to buy ISA (HBISA) arrived on the market in late 2015. It is intended to help first-time buyers. Unlike a regular cash ISA, the incentive is more than just tax-free interest, the government will pay a tax-free bonus on savings.
However, the HBISA will only be available until 30 November 2019, so it is important to get the message out to clients that time is fast running out.
Pro advice. Whilst they may not be directly interested in the HBISA, it would certainly be of use to adult children who are looking to get on to the property ladder.
Qualifying
To open a HBISA, the individual must:
- be age 16 or over
- have a valid NI number
- be a UK resident; and
- not have an active cash ISA.
An HBISA can be opened if the individual has invested in a cash ISA, but they will have to stop paying into it and transfer up to £1,200 into the HBISA. The remaining funds will need to be transferred into a stocks and shares ISA or non-ISA account.
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.
Bonus
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 elsewhere, and it must be bought with the aid of a mortgage.
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.
Paying in
Your clients can pay up to £200 per month into an HBISA, but in the month they 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.
Pro advice 1. 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.
Pro advice 2. A well-known money saving expert recently advised that people should look to open accounts by the deadline, even if they have no current savings. This is good advice, as it means that the opportunity to secure an account isn’t lost.
Whilst many of your clients may give little thought to the help to buy ISA, it would certainly be potentially useful for adult children. Advise them to open an account if they are eligible, even if they have no savings at present. This will mean the opportunity to save and earn the bonus is not lost later on.