NORMAL ISA
A normal ISA is a tax free savings or investment account that enables UK taxpayers to save or invest within a tax free ‘envelope’. There are a variety of ISAs available including Flexible ISAs and Junior ISAs (for the under 16s).
With an ISA you’ll earn tax-free interest on your savings or a return on your investments. You can only open one ISA per year, but it is possible to transfer to another with another provider.
At the time of writing a tax payer may invest or save up to £20,000 per annum into an ISA and cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS).
HELP TO BUY ISA
By taking out and contributing to a Help to Buy ISA the government will top up your savings by 25%. In other words, for every £200 you save, the government will contribute £50 in addition to any interest earned.
The most you can get from the government is £3,000, so the maximum amount you can save in a Help to Buy ISA is £12,000. The minimum amount you need to save to qualify is £1,600. The maximum amount must be saved over a period of time of up to 4 ½ years.
You can open your ISA with an initial sum of up to £1,000 which also qualifies for the 25% boost from the government and it’s worth noting that Help to Buy ISAs are available to each first-time buyer, not each house.
For example, if you’re buying a property with your partner, you’ll be able to get a contribution from the Government of up to £6,000 towards the purchase of your home. However, this bonus sum, unlike the ISA capital saved and any ISA interest accrued, cannot be used against purchase costs or a deposit but is simply deductible from the mortgage sum otherwise necessary. The role of the bonus is therefore to reduce the mortgage sum and increase equity in the property.
Your solicitor or conveyancer must apply for your government bonus due under the Help to Buy ISA once you’re close to buying your home. Once they receive the bonus, it will be added to the money you’re putting towards your first home.
In order to qualify for a Help to Buy ISA you must be;
- a first-time buyer
- aged 16 or over
- You can use it to buy any home worth under £250,000 (or under £450,000 in London).
However, you can’t use a Help to Buy ISA if you’re going to rent out the property or to buy a property overseas and you can’t have more than one Help to Buy ISA. Also, you can’t open a Help to Buy ISA and a normal Cash ISA in the same tax year.
For more details on how much you can expect to be able to borrow and what this will cost you every month contact our mortgage advisers on 01928 507477.
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