How an ISA can help you invest in the property market


Individual savings accounts (ISAs) are a great, tax-efficient way of saving money, and they can provide an effective route into property investment – and not just for first-time buyers.

The individual annual ISA allowance in the UK is currently £20,000, an increase from £15,240 last tax year. This is the maximum you can invest in any one tax year across the different types of ISA, including cash, stocks and shares, innovative finance and lifetime ISAs.

Up to your allowance, you don’t pay any tax on interest made on money in an ISA, or on income or capital gains from ISA investments, which means it can be a more effective way of saving than a traditional savings account. The following are some ways ISAs can be used when investing in property.

Help to Buy ISA

Since December 2015, first-time buyers have been able to make use of the Help to Buy ISA, where the government pays the saver a bonus of up to 25% of the amount saved, which can provide a helpful boost towards a deposit. You must save a minimum of £1,600 into the ISA, and the bonus can only be paid once during the home purchase, with the maximum bonus available being £3,000 (based on a maximum saving on £12,000). It is only eligible for use on properties up to £250,000, or £450,000 in London. The scheme is set to end on 30 November 2019, although existing ISAs at that point will still gain tax-free interest.

Lifetime ISA

Like Help to Buy, the Lifetime ISA can be used to buy your first home, although it can also be saved for when you’re 60 or over, or if you’re terminally ill. Only those aged between 18 and 40 can open a Lifetime ISA, and the annual limit is £4,000. The government will then top up your savings by 25%, up to a maximum of £1,000 a year. You can use it to buy a UK property up to £450,000 as long as it is your first property and you have been saving for more than a year.

Property ISA

Through a Property ISA, you can invest in shares in residential property, enabling you to potentially earn more interest than with a regular investment with the added bonus of the tax-free allowance. Property ISAs are provided by certain companies, such as Bricklane, which is currently offering an 8.1% annualised return through rental income and price growth, with a minimum investment of £100, although some fees apply.

It falls under the same bracket as a stocks and shares ISA. You pay in your cash, and it gets pooled with other investors’ money and held in a fund which is invested in buy-to-let properties across the UK – and all the income and equity gains made through the fund are free of tax. Although it is vital to know the risks when investing in this type of ISA, it can enable savers to make more from their money, which can then be withdrawn by selling your shares to another investor, and the money you make can go towards your next property investment.

Innovative Finance ISA

This is a higher risk form of ISA investment, which again can offer the promise of high returns and no tax payable on any interest or capital gains – but these ISAs aren’t protected by the Financial Services Compensation Scheme. They are offered by companies who provide peer-to-peer lending on a range of investments, which can include property, as well as personal and small business loans.

If you invest in this type of ISA, you essentially lend money to the company (or borrowers), which is then invested and generates returns on the original investment. The same £20,000 a year limit applies, and the limit can be split among other types of ISAs. Different companies and platforms will offer different safeguards, which investors should research thoroughly, but your capital is almost always at risk with this type of ISA compared to traditional cash savings.

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How an ISA can help you invest in the property market

How an ISA can help you invest in the property market


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