#ARealNoBrainer

We blogged last week about the Help to Buy ISA as being a #nobrainer for first time buyers. As of 6th April the Lifetime ISA comes into play. This is a deal changer.

The Lifetime ISA can be used for either buying your first home or a pension. We will be focusing on the first time buyers among you as part of our first time buyer tips.

With the Lifetime ISA you can save up to £4000 a year and the government will give you 25% on top. So how does this translate?

  • If you save £1000 in a year then you will get £250 on top – leaving you with £1250 in your account at the end of the tax year.
  • If you manage to save the whole £4000 you will get £1000 on top – leaving you with £5000 in your account at the end of the tax year.

However, keep in mind that if you withdraw the money for anything other than a house you will have to pay a 25% withdrawal fee i.e. give the government their money back.

How does this compare to the Help to Buy ISA?

  Help to Buy ISA Lifetime ISA
Opening Age 16 18
Upper Opening Age Limit None 40
Maximum Yearly Contribution  £2400 (£3400 in Year 1) £4000
Maximum Bonus £3000 £32,000 (assuming you have it open from 18-50yrs)
Government Top Up 25% 25%
Maximum Property Value

£250,000 Outside London 

 

£450,000 London 

£450,000
When can I use the money for a property?  Once you have £1600 After the account has been open for at least 12 months 

I’ve already opened a Help to Buy ISA but this seems like a better deal. What can I do?

You can transfer the money across to the Lifetime ISA without it affecting your allowance – you have until 5th April 2018. But be aware that only money put in BEFORE April 6th 2017 will be unaffected.

So the idea here is, if you have a Help to Buy ISA but want to change to a Lifetime ISA – do it as soon after 6th April 2017 as possible!

Should I open a Lifetime ISA?

If you want to buy a home at some point in the future and you have never owned one before, then yes!

It doesn’t matter if you only have £1 savings – do it now. Particularly, as it needs to have been open for at least 12 months before you can take the money out and get the bonus. You can add to it as and when you are able to as unlike the Help to Buy ISA you can out in lump sums (no set limit per month) so long as you do not exceed £4000 yearly.

What’s the verdict – Help to Buy ISA or Lifetime ISA?

If you ask us in MOST cases the Lifetime ISA now trumps the Help to Buy ISA and is designed to eventually replace it. So the Lifetime ISA is the way forward and a real no brainer!

However, there are some exceptions to this:

  • If you are over 40 and a first time buyer.
    • This is because to open a Lifetime ISA you have to be under 40 but there I no upper age limit on the Help to Buy.
  • If you are planning on buying a home before April 2018.
    • This is because a Lifetime ISA has to be open for 12 months before you can take the money out and get the bonus.

So invest in your future today. Open a Lifetime ISA.

UPDATE (07/04/16)

The Lifetime ISA became available yesterday – 06/04/17 and as of then none of the high street banks are offering the cash versions of the Lifetime ISA. The main reasons cited for this is that they don’t want to get it wrong as they just aren’t 100% sure how it works – particularly for the pension side of things. However, most banks say that they will consider offering the ISA in the next few months – so hold fire just for now! We will keep this updated.