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12th
Oct 2020
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How to Use an ISA to Buy Your First Home

How to Use an ISA to Buy Your First Home

The task of saving for a deposit on your first home is a long and tough one, but it will all be worth it when you finally unlock the door and have your first glass of bubbly in your new home. You’ll want all the help you can get in struggling up the hill of deposit-saving, so putting your savings into a tax-free wrapper can help. But which one should you choose? We’ve broken down your options to help you make an informed decision.

When thinking about how to use an ISA to buy your very first home, the first thing that comes to mind is a Help to Buy (HTB) – but as of November 30th, 2019, you cannot open a new Help to Buy ISA.

You can still use an existing HTB ISA you hold, but if you’re looking to open an ISA account to save for your first house deposit, you still have options, including:

Junior ISAs

This is one for the future planners; if you’re under the age of 18, a parent or guardian can open this account on your behalf. A JISA is an ISA account for someone under the age of 18, opened by their parents, where money can accrue in their name, and gain returns which are not subject to capital gains tax or income tax.

If you already have one, you’ll likely know – it’s a great way for parents who wish to gift money to their children and keep it safe from the tax man.

And considering that the current yearly ISA limit for a JISA is £9000, it’s definitely an option worth looking at if you’re under 18, have savings you’d like to one day put towards a house deposit and you have a parent willing to open you an account.

You'll be able to manage the money from the time you're 16, but you won't be able to access it until you turn 18. 

Lifetime ISAs 

A Lifetime ISA account is probably the best option for saving for a house deposit – largely, because one of the main functions of this account is to help first time buyers to save for their first deposits.

With a Lifetime ISA (LISA) you can save up to £4000 each year into an account which the government will add a 25% boost to each year.

This means you could stand to gain up to £1000 each year of free money should you put in the maximum amount of £4000 each year.

This is a very attractive return rate – but it does come with one very important catch: you can only withdraw the money in two instances, or you loose the 25% bonuses and may be subject to further penalties.

These two instances are:

  • Withdrawing the funds for a deposit on your first house
  • Withdrawing the funds to fund your retirement once you’re over the age of 55

Investment ISAs

An Investment ISA, also known as a Stocks and Shares ISA, allows you to invest your money without paying tax on the returns.

The government cap on an ISA means that with an Investment ISA, you can invest up to £20,000 each tax year into any ISA account.

If you’re looking to grow your money, you’ll want to be thinking about opening a Stocks and Shares ISA, as they tend to generate higher returns than other ISA accounts, such as Cash ISAs.

However when it comes to saving for a house deposit, an Investment ISA may not be the best option if you are looking to save for less than five years. Five years is generally the recommended amount of time that Investment ISAs should be left to accrue interest, to allow for general fluctuations in the market. 

Read more about Investment ISAs

Read more about Lifetime ISAs

Read more about Junior ISAs

Lifetime ISAs

Lifetime ISA

from AJ Bell

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Over 2,000 Funds, Shares and ETF's
  • Invest From: £25 per month
  • Trade From (frequent trader rate): £4.95
  • Trade From (standard trader rate): £9.95

Why we like it: Start from £25 per month and save up to £4,000 per year. Wide choice of stock market linked investments, or utilise online investment ideas. Can be retained in cash. Simple annual management fee of 0.25%. Deal from £1.50 and never pay more than £9.95 per online deal. AJ Bell are regulated by the Financial Conduct Authority and are covered by the Financial Services Compensation Scheme. Capital at risk. AJ Bell Youinvest doesn’t offer advice.

  • Select your own investments, access fund options, or choose investment ideas where specialists do the hard work for you
  • Access your account online 24/7 and deal on the go with the mobile app
  • UK-based customer services team, webchat and email support
  • Open with lump sum, regular contributions or transfers from existing ISA's
  • Contribute up to £4,000 per year until you’re 50
  • Get a 25% government bonus: For every £4 you pay in you receive a £1 bonus
  • Use your savings to buy your first home up to a value of £450,000, or use as retirement income from aged 60
  • You can contribute to both a stocks and shares Lifetime ISA and a ‘regular’ stocks and shares ISA in the same tax year
  • Must be UK resident aged 18-39 to open
  • If you need to access your money for any other reason, you’ll pay a 20% penalty (25% from 6 April 2021)
  • Annual account charge of 0.25%
  • Dealing and other charges will depend on the investments you choose and will apply in addition to an annual account charge
  • Tax rules can change and their benefits depend on your circumstances. Lifetime ISA allowance forms part of the overall £20,000 annual ISA allowance
  • Tax and Lifetime ISA rules apply
  • If you choose to save in a LISA instead of enrolling in, or contributing to, your workplace pension you will miss out on the benefit of your employer’s contributions to that scheme and your current and future entitlement to means tested benefits may be affected

Lifetime ISA

from Nutmeg

  • Protection Scheme: FSCS
  • Fund Choice: Fully Managed or Fixed Portfolios
  • Invest From: Min. Pay in from £100 to £4,000 to start your Lifetime ISA.

Why we like it: Simple annual portfolio management fee from 0.45% to 0.75%, incl VAT. There are also some underlying fund costs and market spread charges. Easy, online set up in minutes. Start with as little as £100 up to £4,000. Plus, live chat, helpful customer support and really useful investor tools and guides. Nutmeg are regulated by the Financial Conduct Authority and are covered by the Financial Services Compensation Scheme. Capital at risk.

  • Nutmeg Lifetime ISA: Invest in high-quality, low-cost exchange traded funds
  • Contribute up to £4,000 per year until you’re 50
  • Get a 25% government bonus: For every £4 you invest you receive a £1 bonus
  • Use your savings to buy your first home up to a value of £450,000
  • You can contribute to both a stocks and shares Lifetime ISA and a ‘regular’ stocks and shares ISA in the same tax year
  • Must be UK resident aged 18-39
  • If you need to access your money for any other reason, you’ll pay a 25% penalty
Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

Latest News

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15th March 2021

You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply". 

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