Lifetime ISA or Help to Buy ISA?

09th February 2018

The deadline for transferring your Help to Buy ISA into a Lifetime ISA is rapidly approaching. The window is closing on 5April 2018, after this date you will not be able to transfer your Help to Buy ISA without the proceeds counting as part of your Lifetime ISA allowance, so you may not be able maximise the 25% bonus offered.

Having said this, transferring may not necessarily be the right thing to do. Read on to get the information you need to help you make the right decision.

The introduction of the Lifetime ISA has added yet another layer of complexity for those who are trying to decide which ISA is the most appropriate for them. Clearly, if you are looking to buy a property, the offer of a 25% bonus is very appealing and first-time buyers shouldn’t miss out on this opportunity.

But whilst both the Help to Buy (H2B) ISA and the Lifetime ISA (LISA) are available, which should you choose?

You are allowed to open both of these ISAs. But, crucially, you can only use the bonus from one of them for the purpose of buying your first home. However, you could use the H2B ISA for your first home and keep your Lifetime ISA until you are 60 or over and enjoy the bonus from this to supplement your retirement income.

Overall the Lifetime ISA offers a better proposition for some, as the annual allowance is greater and the bonus will be added each month - after April 2018 - which means that the Lifetime ISA will benefit from compounded income or growth. In addition, the price of the property that can be purchased is £450,000 regardless of where the property is – with the H2B ISA, the maximum property price outside London is £250,000.

But, if you are looking to buy your home in the near future, you’ll need to choose a Help to Buy ISA as, possibly most importantly, the Lifetime ISA has to be held for 12 months before the bonus can be used towards buying a home. The Help to Buy ISA, on the other hand, just requires you to have deposited £1,600, as the minimum bonus is £400.

So, if you were to deposit the maximum in the first month (£1,000 lump sum plus £200 maximum monthly deposit), and £200 in each of the subsequent months, you would be able to use the ISA and the bonus after only three months.

Of course, there are some other factors that need to be considered, a few of which are covered below.

Cash or Stocks and shares?

The H2B ISA is a cash ISA – and therefore you cannot invest into stocks and shares.

Deposits into the LISA can be cash or stocks and shares, but if you are looking at cash, there is only one Lifetime cash ISA and this is paying just 0.75% interest tax free/AER, as opposed to the best paying H2B ISA, which is currently paying 2.50% tax free/2.53% AER..

How old are you?

The Lifetime ISA can be opened by those aged 18 to 39.

The H2B ISA can only be opened by first time buyers aged 16 or over – but remember that the bonus will only be paid on the purchase of the property.

 

 

Lifetime ISA

 

Help to Buy ISA

How much can be deposited

£4,000 per year

£200 per month (plus single initial lump sum of £1,000)

Can I deposit a lump sum?

Yes – up to £4,000 per year, either as a single lump sum or on a more regular basis

No - after the initial deposit of £1,000, you can only deposit up to £200 pm

What age can I open it

Between 18 - 39

From age 16 (First Time Buyer)

How long can I contribute?

Until the age of 50

30th November 2029

Is there a deadline to open the account?

Not at this stage – only your age will restrict you as you must be between 18 and 39.

Yes – these will stop being available to open after 30th November 2019

When do I get my 25% bonus?

Either on the purchase of your 1st home, or from the age of 60

On the purchase of your first home. The bonus must be claimed by 1st December 2030

When is the bonus added to my ISA

On 5th April 2018, then monthly thereafter (only if you contribute that month)

On the purchase of your first home

How soon can I claim the bonus?

You must hold the LISA for at least 12 months before you can claim the bonus

The minimum bonus is £400, so you must save at least £1,600. So, the earliest you could claim is after 3 months.

Is there a maximum property price?

Yes – your property can be no more than £450,000

Yes - £250,000 (or £450,000 if buying in London)

Is there a maximum bonus?

Yes - £32,000 assuming you contribute the maximum from age 18 to age 50, when contributions must cease. 

Yes - £3,000. Which means that you will earn the maximum bonus when you have saved £12,000

What can I invest into?

Cash or Stocks and Shares

Cash only

Is there a penalty if I withdraw the money for anything other than my first home?

You can access you cash penalty free on or after your 60th birthday, after which you’ll earn the 25% bonus when you encash. But if you cash in before 60 and do not use the LISA for your first home a 25% penalty will apply to both the original deposit and the savings or investment growth.

No – but you won’t receive the bonus.

 

If you have any other questions, please contact us and we’ll answer them for you.

Transferring from Help to Buy to LISA

During the 2017-18 tax year only, those with a Help to Buy: ISA will be able to transfer in the savings they have built up before 6 April 2017 to the Lifetime ISA and still save an additional £4,000 into a Lifetime ISA in that tax year. The whole amount saved will benefit from the 25% government bonus. However, there is an initial minimum holding period of 12 months from account opening before withdrawals can be made for a home purchase.

For those who decide that the Lifetime ISA is the choice for them, it’s important to realise that if you switch from the H2B to the LISA after 5April 2018, the value will count towards the £4,000 annual limit, so if the H2B ISA is valued at more than this, it cannot all be transferred – and you will not be able to add any more to the LISA in that tax year.

And if you’re thinking about transferring an existing Help to Buy ISA into a cash Lifetime ISA, only Skipton Building Society offers this. And they have a deadline of 1 March 2018 to make the transfer. After this date, you will no longer be able to apply to transfer into a Skipton Cash Lifetime ISA in the 2017/18 tax year.

If you would like to speak to one of our savings experts about your ISA please call us on 0800 321 3581 we are always happy to help 

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