In this article, Conveyancing Executive Jennifer Smith takes a look at Help to Buy and Lifetime ISAs.
Jennifer outlines the ins and outs of each ISA and answers some frequently asked questions from first-time buyers around ISAs.
What is a Help to Buy ISA?
A Help to Buy ISA is a government backed savings account specifically for those looking to buy their first home.
The Help to Buy ISA scheme is no longer available to open, however existing holders can pay into their accounts until November 2029 and have until November 2030 to claim their bonus.
How much can I put into my Help to Buy ISA?
Those with a Help to Buy ISA currently in place, can pay in up to £200 per month up to a maximum of £2,400 per year.
At the point of withdrawal, The Government will top up your savings by 25% (up to £3,000).
Can I claim my Help to Buy ISA bonus?
In order to claim your Help to Buy ISA bonus the following conditions must be met:
- The property that you are purchasing must be under £250,000 (or £450,000 if you are in London)
- This must be the only home you own
- This must be where you intend to live
You can claim your bonus after exchange of contracts, if these conditions are met.
How do I get my Help to Buy ISA bonus?
When you are ready to purchase your first home, you must advise your conveyancer that you have a Help to Buy ISA at the start of the process and they will then obtain the bonus on your behalf.
Does the Help to Buy ISA go towards the deposit?
The rules stipulate that the bonus can only be used ‘in the acquisition of land’ as opposed to being used for the deposit.
However, the funds in the HTB ISA can be.
Can you use a Help to Buy ISA for a joint purchase?
If you are jointly buying with another person who also has a Help to Buy ISA, you are both able to claim your bonuses towards the property purchase.
If you are jointly buying with another person who doesn't have a Help to Buy ISA, you will still be able to claim your bonus.
What is a Lifetime ISA?
A Lifetime ISA (LISA), is a savings account which can be used to buy your first home or save for later life.
Who is eligible to open a Lifetime ISA?
To open a Lifetime ISA, you must be:
- A UK resident/Crown servant
- Who is between the age of 18 and 40
Which banks offer a Lifetime ISA?
There are less banks currently offering LISA accounts; however, the main two providers are Skipton and Moneybox.
How much can I put into my lifetime ISA?
You can deposit £4,000 into your LISA each year, and the government will add a 25% bonus to these savings up to a maximum of £1,000 a year.
When can I withdraw from my lifetime ISA?
You will be able to withdraw money from your LISA for the purpose of buying your first home, if you are aged 60 or over or if you are terminally ill with 6 months to live.
How to use your Lifetime ISA to purchase a home
In order to use your LISA to purchase your first home the following criteria must apply:
- You must be a First-Time Buyer (you can’t have ever owned a property)
- The property must cost £450,000 or less
- You must buy the property at least 12 months after making your first payment into your LISA
- You are buying with a mortgage
- You use a conveyancer to act for you in the purchase, as the LISA provider will pay the funds directly to them
- You intend to live in the property
Does my Lifetime ISA go towards the deposit?
You can withdraw LISA monies in time for exchange of contracts, meaning they can be used towards the deposit.
However, the purchase must complete within 90 days of withdrawal otherwise funds must be returned to your LISA provider.
Can I use my Lifetime ISA for a joint mortgage?
If you are jointly buying with someone who also has a LISA, they can use their savings and government bonus too.
However, the property price cap will remain at £450,000, despite the joint mortgage.
If the second purchaser already owns or has a legal interest in another property, they will pay a 25% withdrawal charge to use their LISA savings.
Can I use both a Help to Buy ISA and a Lifetime ISA to purchase a home?
If you have both a LISA and a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home.
Can I transfer funds from one ISA to another?
You can transfer money from a Help to Buy ISA to a LISA easily, however if you transfer money from a LISA to a Help to Buy ISA you will have to pay the 25% withdrawal charge.
Can I transfer my ISA to another provider?
Absolutely! It is always worth keeping an eye on interest rates to ensure you get the most out of your ISA account.
Do I pay tax on an ISA?
ISAs are Income Tax and Capital Gains Tax free, because ISAs are cash!
You also do not have to declare ISAs on your annual tax return.
What if I exceed my ISA allowance?
Your ISA provider should not allow you to exceed your ISA allowance. Any extra money should be rejected and paid back into your account.
If, for whatever reason, you do overpay and exceed the ISA allowance; you should speak to your ISA provider as well as HMRC.
There are no tax advantages to overpayments.
A complete guide for First-Time Buyers
Our bright Property Solicitors have written a complete 32-page guide to buying a home for first-time buyers.
The guide covers everything that you need to know, from mortgages and mortgage help to stamp duty and the bank of mum and dad.
Download the guide for free here.
Specialist First-Time Buyer Solicitors
If you have any questions following this article, or are looking to instruct a solicitor to help with the purchase of your first home, feel free to get in touch with our friendly team.
We offer a free initial chat for all new clients.
To get in touch, call us on 01202 499255 or fill out the form at the top of this page.
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