From December 1 this year UK residents who have never bought a house before will be eligible to invest in a Help to Buy ISA (HtBISA).
For the uninitiated, an ISA is a tax-efficient savings account. On the face of it, this new HtBISA is a good deal. You can pay in a £1,000 lump sum to begin with, plus up to £200 a month thereafter, up to a maximum of £12,000. On withdrawal, and only if you use it as a deposit on a house, the government will add £50 for each £200 paid in. The money in your HtBISA will accrue whatever meagre interest the banks currently offer, but the government bonus does not attract interest. So if you pay in the maximum each month, after 4 years and 7 months you'll have hit the £12k limit. If you buy a house with it, the government adds £3k, plus you'll have a bit of interest in there.
However, you can't pay into a HtBISA and a regular ISA in the same year. As the regular ISA limit is £15,240 a year, you're potentially losing out on a £12,640 allowance for tax-efficient savings each year by putting money in a HtBISA. If you're only saving a few grand a year and you do want to buy a house, the choice is obvious: stick it in the HtBISA, and take the hit on any small excess savings that are then not tax sheltered. But if you're saving £15k a year (I'm not now, but my earning power is increasing, so hopefully soon I will be), what then? Is a HtBISA still the logical choice? Ignoring the interest, that's £75k over the lifetime of the HtBISA sitting in non-tax-sheltered savings/stocks/whatever, for a £3k gain. Intuitively it doesn't seem worth it to me, but then I'm shit at maths. Anyone care to speculate on a tipping point when your annual savings take it from "worth it" to "not worth it"?
