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Help to buy ISA vs Lifetime ISA

Help To Buy ISA vs Lifetime ISA

The Lifetime ISA offers clear advantages over the Help to Buy ISA for first-time buyers, so long as you meet the criteria. Here we explain everything you need to know about both schemes and what to consider in deciding the best option for you.

What is the Help to Buy ISA?

  • The Help to Buy ISA is only available to first-time buyers aged 16 and over.
  • For every £200 deposited into the account, the government will add £50. That’s an extra 25% of tax-free savings.
  • You can make a deposit of £1,000 when you open an account. There is no minimum monthly deposit – but the maximum amount you can save a month is £200
  • To get the bonus you need to have saved a minimum of £1,600. The maximum bonus you can receive is £3000 (for which you would have saved £12,000)
  •  The scheme launched on 1 December 2015. It will close to new entrants from 30 November 2019 and the bonus must be claimed, through the purchase of a property,  by 1 December 2030
  • You will earn interest on your savings, so shop around for the best account from different banks and building societies, but you will not earn interest on the government bonus as this is only paid to you when you purchase a property.
  • The cost of the home must not exceed £250,000 unless the property is in London, where the limit is £450,000. It cannot be used to purchase a buy-to-let property, but it can be used on older homes as well as new build.
  • You can transfer money saved in a Help to Buy ISA before April 2017 into a Lifetime ISA by 5 April 2018 without affecting your Lifetime ISA allowance for that year (see below to understand whether this is the right option for you).

What is the Lifetime ISA (LISA) and what are the advantages?

  • The Lifetime ISA launched in April 2017 and allows you to earn a 25% bonus for savings spent on either a deposit for a home or towards a pension income in retirement.
  • As well as offering two options for how you use your savings and government bonus, the Lifetime ISA has several other major advantages over the Help to Buy ISA.
  • It allows you to save much more than the Help to Buy ISA. You can save up to £4,000 per year and the maximum bonus you can earn is £32,000.
  • Unlike the Help to Buy ISA, the government bonus is earned annually so you can earn interest on this sum as well as your own savings.
  • You can use it to buy any home (not just new builds) worth up to £450,000 or towards your pension income after you reach 60.
  • You can pay in lump sums whereas the Help to Buy ISA only allows you to contribute monthly.
  • BUT it is only open to those aged 18-39.
  • The earliest you could withdraw you savings to buy a house and still receive your bonus is April 2018 as it must have been open for a year to qualify for the government contribution

Which should I choose?

  • If you are aged 18-39 and an aspiring first-time buyer, the Lifetime ISA is a clear winner over the Help to Buy ISA. But if you are ready to start saving you might as well start now with the Help to Buy ISA and transfer it later (see below) so that you don’t miss out on valuable bonus payments.
  • If you are under 18 or 40 or over then the Help to Buy ISA is still your only option. (You can open a Help to Buy ISA from the age of 16, so parents might want to consider paying into this for their teenage children).

What about for pensions?

  • Help to Buy can’t be used for retirement saving. Whether or not the LISA is a better option than a pension is much more complicated to work out and beyond the scope of HomeOwners Alliance. We would encourage you to do plenty of research on how best to save for your retirement and, if you need more help, speak to an Independent Financial Adviser (IFA). The Pensions Advisory Service may be able to help you find the information you need (0300 123 1047 or www.pensionasdvisoryservice.org.uk).

Transferring a Help to Buy ISA into a LISA 

  • If you plan to transfer money saved into a Help to Buy ISA before April 2017 into a LISA, you must do so before 5 April 2018 in order to qualify for the government bonus on this sum and not impact on your annual LISA limit for the year.
  • You can hold a Help to Buy ISA and a LISA. If you hold both you can only use the government bonus towards buying a house via one of the accounts.
  • After buying a house you can continue saving towards your retirement in a LISA.

How do I get the bonus?

  • If you don’t buy a home you won’t get the bonus on the Help to Buy ISA.
  • On the LISA, if you don’t buy a home you can still get the bonus when you reach age 60 as it is also intended to be a vehicle to save towards retirement.
  • When the Help to Buy ISA or LISA is used to buy a home, any cash bonus you have qualified for will be paid straight to your conveyancing solicitor when you buy the property.
  • Let your conveyancing solicitor know you are buying with a Help to Buy ISA or LISA as they may levy a charge for the administration work involved.

Can my partner and I both get one?

  • Accounts are available one per person – so couples or friends buying together could each get a bonus.

Can I use the government bonus towards a deposit on a property?

  • With the Lifetime ISA, yes you can. You’ll receive the bonus before exchange of contracts. With the Help to Buy ISA however the bonus is not received until after completion.

A word of warning:

  • If you don’t buy a home with your Help to Buy ISA you won’t get a bonus.
  • BUT if you don’t buy a home with your LISA and need to withdraw the money before you are 60  the situation is much worse. You will have to pay back the government bonus that has been paid to you annually.
  • It is also worth noting that there is no guarantee that future governments will maintain these offers, meaning there could be a risk to bonuses.

What happens if the house I am buying with my ISA falls through?

  • The bonus will be handled by your solicitor or conveyancer who applies for the bonus on your behalf. If the purchase falls through, your conveyancing solicitor would have to ensure the bonus is paid back.

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