Lifetime ISA - a magnificent 7 reasons to transfer a Help to Buy ISA
- And 1 reason why you shouldn’t
- Comparison of Help to Buy and Lifetime ISA
- HL Lifetime ISA transfer applications open on 6th April
Danny Cox, Chartered Financial Planner, Hargreaves Lansdown;
"Progressively rising house prices have made it increasingly difficult for young people to buy their first home. The Help to Buy and Lifetime ISA give hard cash incentives to support that important first step onto the property ladder. Over 500,000 Help to Buy account holders should be considering their option to transfer to a Lifetime ISA. With the right planning this could increase their deposits and help them to get onto the housing ladder more quickly."
1. Save more sooner
In a Help to Buy ISA you can contribute up to £200 each month (with the exception of the first month when you can contribute £1,200). In a Lifetime ISA you can contribute up to £4,000 a year, with no restrictions on when or how you invest: lump sum, monthly, or a combination of both.
2. Greater potential bonus
With both the Help to Buy ISA and Lifetime ISA, the government adds 25% to your savings. At up to a £1,000 a year you could receive a greater bonus from a Lifetime ISA in just 13 months than a Help to Buy ISA.
This is how it works:
- £4,400 plus interest (max possible) transferred from H2B ISA in 2017/18 tax year – at least £1,100 bonus paid after 6 April 2018
- £4,000 contribution to LISA on 6 April 2017 - £1,000 bonus paid after 6 April 2018
- £4,000 contribution to LISA on 6 April 2018 - £1,000 bonus paid May 2018
Total bonus £3,100 paid no later than May 2018.
3. Bonus paid earlier
The Help to Buy ISA bonus is 25% of the closing balance of the account paid at the time of property purchase. The Lifetime ISA is 25% of each contribution paid as you save and invest: initially the bonus is paid annually, then monthly.
This means you benefit investment returns on the government bonus as well as the amount you invest. The more you invest, the longer you invest for, the greater the compounding effect and the larger the value of your Lifetime ISA pot.
4. Invest for greater returns
A Help to Buy ISA is a cash ISA and as such only allows you to save as cash. As well as offering the opportunity to save as cash, the Lifetime ISA also gives you the option to invest in the stock market which offers the potential for much greater longer term returns. This should help you reach to build a larger deposit quicker.
5. It doesn’t affect your Lifetime ISA allowance
When you transfer a Help to Buy ISA to a Lifetime ISA in the 2017/18 tax year, it does not count towards your Lifetime ISA allowance. This means you could receive an even bigger bonus. Here are the rules for transferring your Help to Buy ISA in 2017/18:
- Your Help to Buy ISA is valued on 5 April 2017
- You can transfer this value, plus any interest accrued on it, to a Lifetime ISA at any point during the 2017/18 tax year. The value of this transfer will not count towards your £4,000 annual Lifetime ISA allowance and you will receive the 25% government bonus on the value of the transfer
- You can only make one transfer from a Hep to buy ISA without it counting towards your Lifetime ISA allowance
- Any contributions after 5 April 2017 to a Help to Buy ISA must be transferred in full and will count towards your Lifetime ISA allowance
- Any subsequent transfer or transfers made after 5 April 2018 will count towards your £4,000 Lifetime ISA allowance so it makes sense to transfer before then
6. Bonus can be used for initial house deposit
Under Help to Buy ISA rules the government bonus is not paid until completion of the house purchase. This means the government bonus is not available at exchange for the deposit needed to secure your first home, only your own contributions to a Help to Buy ISA can be used for this.
Lifetime ISA rules allow up to 90 days from withdrawal for your house purchase to complete. This allows you to use both your own contributions and the government bonus for the initial deposit.
7. Purchase any home worth up to £450,000
The Lifetime ISA can be used to purchase a first home worth up to £450,000 in the UK.
The property price for a Help to Buy ISA is capped at £250,000 (£450,000 in London). This means a Lifetime ISA could provide you with more scope to buy the first home that is right for you.
One reason why you should not transfer Help to Buy ISA to a Lifetime ISA
If you plan to buy a property before April 2018 keep your Help to Buy ISA.
A Lifetime ISA has to be in force for a full 12 months before any bonus is paid. Therefore if you plan to buy your first home within the next 12 months, stick with Help to Buy otherwise you won’t be able to use a government bonus to help your purchase. Importantly, the 12 months starts from when the Lifetime ISA is opened, not from when the transfer takes place. Therefore you may want to open your Lifetime ISA as soon as possible and transfer in the last few months of the tax year.
Lifetime ISA and Help to Buy ISA comparison
Help to Buy ISAs: a history
Help to Buy ISAs were introduced in December 2015 to help first-time buyers onto the property ladder. They have proved very popular with over 500,000 first-time buyers opening an account.
The introduction of the Lifetime ISA
In March 2016, the government announced the introduction of the new Lifetime ISA. Similar to the Help to Buy ISA, the government adds a 25% bonus to the Lifetime ISA, but there are some key differences.
|Lifetime ISA||Help to Buy ISA|
|How much can you save each year?||£4,000||£2,400 (£3,400 in the first year)|
|Can you invest lump sums?||Yes||No – you can save up to £200 a month (£1,200 in the first month)|
|What is maximum bonus?||£32,000*||£3,000|
|When do I receive the government bonus?||Annually for 2017/18 tax year and monthly from 2018/19||When you buy your first home|
|Can I earn interest on, or invest the government bonus?||Yes. You can invest or earn interest on the government bonus as soon as it has been paid to your Lifetime ISA||No. The bonus is paid on the balance of your account to your conveyancer when you buy your first home|
|When can I use the money to buy a house?||12 months after opening your Lifetime ISA||After £1,600 has been saved (minimum of 3 months)|
|Who can open the account?||18 – 39 year olds||First-time buyers aged over 16|
|What’s the maximum property value allowed?||£450,000||£250,000 (£450,000 in London)|
|Can I use the money other than to buy a house?||Yes, you can also withdraw the money tax free after 60 or if you are terminally ill. Other withdrawals after 6 April 2018 will incur a 25% penalty charge which could mean you get back less than you have contributed to a Lifetime ISA.||Yes, but you will not qualify for the government bonus on any amounts you withdraw.|