If you’re under 39 and you’ve got a Help to Buy ISA, you could claim up to £1,100 extra in Government bonuses towards your house deposit, thanks to a quirk in the LISA rules.
The rules allow you to transfer your Help to Buy ISA savings to a LISA this 2017-2018 tax year, without it affecting your annual LISA limit. Only money that was in your Help to Buy ISA on 5th April 2017 (the day that LISAs were launched) is eligible.
For example, if you paid £1,200 into your Help to Buy ISA when the scheme launched in December 2015, followed by the maximum of £200 a month after that, you’d have £4,400 plus interest saved. If you transferred this sum into a LISA, you’d be able to get the 25% Government bonus on the full amount : giving you £1,100. In addition, you can put up to £4,000 in your LISA this tax year, with a potential Government bonus of £1,000. As a result, savvy savers can receive up to £2,100 in Government bonuses this tax year, rather than the usual £1,000.
If both you and your partner opened Help to Buy ISAs, you can both take advantage of the quirk, provided that you meet the other scheme rules - such as that you are both first time buyers aged 39 or under.
You’ll need to ensure you’ve opened a LISA and completed the transfer by 5th April, the end of the 2017 / 2018 tax year, to take advantage. Note that some institutions have set their own deadlines: Skipton Building Society for example have given savers until 1st March to transfer in their Help to Buy ISA.
Why a LISA could be better
Help to Buy ISAs are cash only and allow an initial deposit of £1,000 plus savings of £200 a month. The scheme can be used on properties worth up to £450,000 in London or £250,000 outside of London and a 25% bonus is available on savings.
By contrast, a LISA allows savings of up to £4,000 each year with no particular monthly limit. The first bonus will be paid at the end of this tax year after which, bonuses will be paid monthly. The LISA can be used to purchase your first home (up to £450,000) or for retirement after the age of 60.
Although the LISAs might appear more attractive at first glance, it’s worth noting that there’s a penalty for withdrawing your cash for any other purpose than purchasing your first property or your retirement. Further, the interest rates on the cash ISAs are less attractive with Skipton Building Society, currently the only cash ISA provider, offering just 0.75%. By contrast, Help to Buy ISA accounts offer up to 2.53%, with some older accounts paying up to 4%.
Savers have the option of a stocks and shares account with a LISA – these will attract certain fees, such as a holding fee and a fee each time an investment is made. Hargreaves Lansdown for example charges 0.45% a year plus fees, while AJ Bell charges 0.25% a year plus fees. There is also the effect of the market spread (approx. 0.10%) to factor in.
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