Budget 2015: Help to Buy ISAs to launch

Under the new Help to Buy ISA scheme, you can save up to £200 every month and the government will add 25% on top (so £50 on £200). You can also start it off with an initial £1,000 which will have £250 added on top of it. The minimum you need in to get the bonus is £1,600 (so a £400 bonus), and the maximum the Government will contribute is £3,000 (so that means you will have saved £12,000).In many way this is equivalent to letting you save for a home deposit from your pre-tax income as the 25% on top is equivalent to the tax a basic rate taxpayer would pay. The Help to Buy ISA will be available through banks and building societies and rates will be set by them and differ just as with regular cash ISAs. This means you will earn interest like a normal cash ISA as well as getting the bonus at the end.

Here's a quick Q&A

Q. Who can open a Help to Buy ISA?

A. You need to be a first-time buyer (ie, never having owned a home before), and just as with a cash ISA, account holders must be aged 16 or over.

Q. When can I open one?

A. Help to Buy ISAs will be available from this autumn. Accounts can be opened within four years from the start date of the scheme (exact date yet to be confirmed). Once it's in there you can keep it open as long as you like.

Q. How will the bonus be paid?

A. The bonus will be calculated and paid when you buy your first home – you'll get a voucher for the bonus which will go straight to your mortgage lender. So you will not get the bonus unless you buy a home.

Q. Can I buy any home with it?

The bonus will only be available on homes worth up to £450,000 in London or £250,000 anywhere else in the UK. Unlike other Government schemes, you are not restricted on buying a new build or second hand home.

Q. Am I restricted on what mortgage I take out?

No. You can use any type of residential mortgage deal you want - you're not just restricted to Help to Buy mortgages.

Q. Can I open this as well as a normal ISA?

A. No. If you open one of these you can't have a normal cash ISA in the same year. And as the most you can put in this in a year is £2,400 (£3,400 in year one) - that's a lot less than the normal £15,240 allowance for the next tax year. Then again, the gain due to the government contribution is much higher.

The Govt will add another £600 (£850) on the amounts mentioned but you'll only get that when you buy a home so it'll never be in your ISA account.The loss of the ISA allowance is mitigated somewhat as from 2016 the Government will allow basic rate taxpayers to earn £1,000 interest tax-free in a standard savings account (£500 for higher rate payers) under the new Personal Savings Allowance, so that cushions the blow.

Q. Can my partner get one too? A. Each first-time buyer can only open one Help to Buy ISA, meaning you can't open one this tax year and then another in the next tax year. But as it's one per person, if you're a couple you can both have one and get double the boost.

Q. Can I withdraw money without it affecting the bonus?

A. No. You only get the bonus on the amount you have in when you get a property, so if you withdraw cash you won't get the bonus on that.

Q. Will I have to pay tax on the bonus?

A. No. The Government bonus will be tax-free, as is all cash inside an ISA.

Q. Will I earn interest on the bonus?

A. No. You only get it when you withdraw the money so it's never sitting in the account.

Q. Will my bonus be calculated on the savings AND the interest I've made?

A. Yes. The bonus will apply to both the amount you save into your Help to Buy ISA and the interest that is built up during the period the account is open.

Q. What happens if interest I earn takes me above the maximum £12,000 on which the Government will pay the bonus on?

A. You can only get a maximum £3,000 bonus, so you won't get any more. However the money is still yours and you can do what you like with it.

Q. Can I keep saving in the account even once I've hit the £12,000 mark?

A. Yes, you can, and you'll earn interest on it all, but it won't mean you get a bigger bonus.

Q. I've got money in a standard cash ISA - can I transfer that to a Help to Buy ISA and get the £3,000 bonus?

A. We're waiting for a response from the Treasury.

Q. Can I use this for a buy-to-let?

No. It is only for residential mortgages

Q. I'm a first-time buyer but the person I'm buying with isn't. Can I use the scheme?

A. Yes, you can still use the bonus towards the cost of the property - they of course won't be able to open one of these ISAs though.

Q. If I open a Help to Buy ISA can I transfer the funds to another ISA to up the rate?

A. You can transfer between Help to Buy ISAs (ie, if another one is paying a higher interest rate) but it is not clear yet if you can do so into or out of a standard cash ISA.