Lifetime ISA’s -Versus- Help To Buy ISA’s
Honestly ISAs are a god send whether you are saving for your first house, a higher or additional rate tax payer or you are simply new to investing and want to protect your savings from the effects of inflation.
They are arguably the most simple investment out there offering completely tax free growth & withdrawals with no restrictions on when and how much you can withdraw – what more could you want?
Money Saving Expert Urges People To Take Up ISA option.
Money Saving Expert Martin Lewis has been in the media recently urging people to open up a Help to Buy ISA even if they just put in £1 and don’t plan to buy a house soon.
I am actually delighted this is getting attention as generally I absolutely agree however it is worth noting that Martin Lewis is specifically talking about Help to Buy ISAs as after November you will not be able to take out an ISA of this kind but if you already have one in place the benefits will continue.
The ISA Options Available
Now to clarify there are two different types of ISA that are designed to help you get on the property ladder:
Help to Buy ISA & Lifetime ISA
Both types of ISA give you a government top-up of 25% i.e. for every £100 that you put in the government give you £25 towards your home.
However there are some key differences:
|
Lifetime ISA |
Help to Buy ISA |
|
|
Who can open one? |
Anyone age 18-39 |
Any first-time buyer 16+ |
|
Max Contribution per year |
£4,000 |
£2,400 (£3,400 in first year as initial contribution of £1,200 permitted) |
|
Frequency of contributions |
Lump Sums & monthly contributions allowed |
After initial contributions only monthly saving permitted |
|
Max Gov Top- up |
£32,000 (max contribution over 32 years) |
£3,000 per person |
|
Timing of Gov Top-up |
Each month (thus you get interest on the bonus going forward) |
When you buy your home (no interest on bonus) |
|
Investment element |
Can have an invested or cash lifetime ISA |
Cash Only |
|
Property Value |
Up to £450,000 |
Up to £250,000 (£450,000 in London) |
|
When can it be used |
Once Isa has been open for 12 months |
Once you have contributed £1,600 (possible within 3 months) |
|
Can I withdraw without buying a home |
Yes after age 60 or if you are terminally ill (less than 12 months to live) |
Yes at any time but no bonus will be paid |
Which ISA Is Best For You?
Unfortunately you cannot use both types of Isa together towards your first house thus you will have to make a decision. However you can transfer the balance of your Help to Buy into a Lifetime ISA at any time as long as it does not exceed £4,000 contribution per year, if it is more than this you will have to stagger the transfer over multiple years.
In most cases if you’re eligible for a Lifetime ISA, as you can save more in it and use it on properties of a higher value, it is usually the best option.
However, if you’re not certain you’ll ever buy or are buying in less than 12 months time Help to Buy ISAs may be best, as you can utilise it within 3 months and you can still access the cash with no penalties without having to wait until age 60 if you don’t use it.
Equally, if you are not certain you will ever buy a house but are in a position to be able to start saving towards retirement a Lifetime ISA could be ideal.
But Martin Lewis’ sentiment still stands, if you are uncertain but may benefit from a Help to buy ISA get a quid in one now before November 30th. But I would add also stick a quid in a Lifetime ISA after 12 months you can use it anytime!
How to get started?
If you would like to find out more about Lifetime or Help To Buy ISA’s we offer a free initial consultation to discuss your options. Call us on 0161 437 5999 or email us for more information.