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  • FIRST POST
    • MSE Helen Saxon
    • By MSE Helen Saxon 16th Mar 16, 5:06 PM
    • 75Posts
    • 42Thanks
    MSE Helen Saxon
    Lifetime ISAs guide
    • #1
    • 16th Mar 16, 5:06 PM
    Lifetime ISAs guide 16th Mar 16 at 5:06 PM
    Hi!

    This is the discussion thread for the



    Click reply below to discuss. If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.


    Thanks folks,
Page 2
    • jimjames
    • By jimjames 23rd Mar 16, 1:46 PM
    • 11,941 Posts
    • 10,343 Thanks
    jimjames
    That's interesting that if you are a couple and one of you owns a house, that the other can use their LISA to purchase another home. Under the new stamp duty rules, wouldn't you both classed as second time buyers in this instance?
    Originally posted by IceSkater10
    Not if it's to buy a replacement to live in. It can't be used to buy a house on a BTL mortgage.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • greensalad
    • By greensalad 23rd Mar 16, 1:48 PM
    • 1,217 Posts
    • 1,881 Thanks
    greensalad
    The H2B ISA isn't a separate product - it's a cash ISA so you can only pay into one cash ISA per year. The lifetime ISA however is a separate product so you can pay into that and a cash ISA in the same year.
    Originally posted by Ed-1
    Thanks for clarifying.
    • PhilBee
    • By PhilBee 23rd Mar 16, 2:25 PM
    • 6 Posts
    • 2 Thanks
    PhilBee
    In the LISA guide it says:

    A little aside...

    Not to do with your choice, but it's worth taking a look at the real cleverness behind this from the Treasury. If people use a LISA rather than a pension, as it comes from taxed income it gets the Treasury tax revenue now. If people put it in a pension, the Treasury has to wait years until it gets tax. So, this could be Mr Osborne cleverly grabbing cash out of future Chancellors' pockets.

    I do not really understand this because it also says that the bonus is paid at the end of the tax year so surely it is only delaying the tax refund for up to a year.
    Originally posted by King Of Fools
    Exactly. The tax is lost to both future chancellor and today's chancellor, because it goes back to the saver at the end of each tax year in the form of the 25% bonus. Mr Osborne only gains if the saver is a higher rate taxpayer.
    • AlexKershaw
    • By AlexKershaw 23rd Mar 16, 2:51 PM
    • 1 Posts
    • 1 Thanks
    AlexKershaw
    It says "So on the surface the amount you put in and get are pretty similar for basic-rate taxpayers."

    How is this true?

    Pension: Earn £100, after-tax £80, put in £80 topped up to £100, take out after-tax £80

    LISA: Earn £100, after-tax £80, put in £80 topped up to £100, take out £100

    Where am I going wrong?
    • Cassandra W
    • By Cassandra W 23rd Mar 16, 4:21 PM
    • 20 Posts
    • 54 Thanks
    Cassandra W
    Means testing
    One thing not mentioned in the article's comparison of a LISA and pension is that a pension pot is excluded from means testing but an ISA currently isn't.

    If at any time while having cash in an LISA someone lost their job, their savings in the LISA might mean they cannot claim means tested benefits. If their money had been put into a pension pot, that wouldn't count as savings.

    Is Osborne sneakily trying to reduce the future welfare bill?
    • ashton53
    • By ashton53 23rd Mar 16, 4:22 PM
    • 508 Posts
    • 22,360 Thanks
    ashton53
    I know that the bonus is only paid until age 50, but can you still contribute between ages 50-60, and would interest still be paid after age 50?

    Just wondering as there’s a 10 year gap between the bonus ending at age 50 and being able to take it out without any restrictions for your pension at age 60. I don’t know if LISA is considered ‘dormant’ for those 10 years (where both contributions and interest aren’t added), or semi-dormant (interest is still added, but contributions must stop), or active (you can still contribute and interest will be paid, but obviously no bonus will be added). There’s not much information about what happens during this 10 year ‘gap’ (other than that you are penalised for withdrawing it early, unless you are buying your first house).
    • colsten
    • By colsten 23rd Mar 16, 5:09 PM
    • 8,676 Posts
    • 7,319 Thanks
    colsten
    You won't be asked to leave your savings without growth & dividends etc for ten years but I think you need to be a little patient for the finer details.

    1.9 The government wants it to be as easy as possible for individuals to save additional funds on top of those receiving a bonus (for example, if they want to contribute more than £4,000 a year or
    keep contributing after age 50) and will explore with the industry the best way to achieve that.
    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508176/Lifetime_ISA_final.pdf
    • CapricornLass
    • By CapricornLass 23rd Mar 16, 6:57 PM
    • 59 Posts
    • 190 Thanks
    CapricornLass
    I've got a question, which I haven't seen any answer to as yet...

    I think I'm right in saying that any money held in a pension is protected from creditors if a self-employed person goes bankrupt. Does LISA have the same protection?
    Sealed Pot Challenge no 265.
    • masonic
    • By masonic 23rd Mar 16, 7:16 PM
    • 9,126 Posts
    • 6,273 Thanks
    masonic
    I think I'm right in saying that any money held in a pension is protected from creditors if a self-employed person goes bankrupt. Does LISA have the same protection?
    Originally posted by CapricornLass
    At this stage, there's no reason to think it would be treated differently to a normal savings account in that respect. There has been some discussion about a LISA counting towards savings in a means test for benefits, which of course pension savings do not.
    • King Of Fools
    • By King Of Fools 23rd Mar 16, 8:16 PM
    • 1,545 Posts
    • 588 Thanks
    King Of Fools
    However, it would seem a bit unfair counting the LISA as assets given that you may not be able to access it penalty free for up to 42 years!
    • colsten
    • By colsten 23rd Mar 16, 8:34 PM
    • 8,676 Posts
    • 7,319 Thanks
    colsten
    However, it would seem a bit unfair counting the LISA as assets given that you may not be able to access it penalty free for up to 42 years!
    Originally posted by King Of Fools
    Always remember: you don't have to have a LISA. If you are saving for the long run, you can do a personal pension and/or a SIPP instead.
    • grey gym sock
    • By grey gym sock 23rd Mar 16, 9:10 PM
    • 4,053 Posts
    • 3,524 Thanks
    grey gym sock
    It says "So on the surface the amount you put in and get are pretty similar for basic-rate taxpayers."

    How is this true?

    Pension: Earn £100, after-tax £80, put in £80 topped up to £100, take out after-tax £80
    Originally posted by AlexKershaw
    not quite. take out £25 tax-free, and the remaining £75 as a taxable pension. however, you might not pay any tax if you have spare personal allowance at the time (which many pensioners do, since their state pension is less than their personal allowance).

    the upshot is that, at best you get £100 out (when it's covered by the personal allowance).

    but if you're over the personal allowance, you pay 20% on the £75, which is £15, so in total you get out £85.

    and it's even worse if you are a higher rate taxpayer in retirement. however, that is unlikely, if you aren't one while you're working.

    so the likely outcomes are that you might get out either £85 or £100.

    LISA: Earn £100, after-tax £80, put in £80 topped up to £100, take out £100

    Where am I going wrong?
    see above. but you're right that LISA looks better in this case. because the pension will at best give you the same outcome as LISA, and might well be worse.

    however, bear in mind that (as mentioned in other posts) you can lose entitlement to means-tested benefits if you save for retirement using a LISA, while a pension pot is disregarded for means-tested benefits, at least so long as you don't draw from it and are below state pension age. which is relevant for people with little in accessible savings; not an issue for people who already have lots (e.g. in normal ISAs, current accounts, etc).

    also, the arithmetic changes if you have access to a salary sacrifice pension via an employer.

    in this case, if you want to give up £80 of after-tax salary, when you are paying 20% income tax + 12% employee NI (= 32%), then you can sacrifice c. £117.65 of gross salary (because that is £80 / 0.68).

    when you draw the pension, you get 25% of the £117.65 tax-free (i.e. £29.41), and may pay tax on the other 75% (i.e. £88.24).

    supposing you pay 20% tax, that is £17.65 in tax, so you get a net £100 out of the pension. which is the same result as the LISA.

    but you might have spare personal allowance, in which case you will get out the full £117.65.

    so using a salary sacrifice pension, the pension can give a better result than the LISA, and otherwise gives the same result. it can't be worse, except in the (for most people, unlikely) event that you become a higher-rate taxpayer in retirement.
    • masonic
    • By masonic 23rd Mar 16, 9:13 PM
    • 9,126 Posts
    • 6,273 Thanks
    masonic
    However, it would seem a bit unfair counting the LISA as assets given that you may not be able to access it penalty free for up to 42 years!
    Originally posted by King Of Fools
    You might think that, but you might also think it unfair that someone might have their home auctioned off at a large discount to its value if they can't pay their mortgage, or that someone is forced to sell investments that have dipped in value in order to settle a loan. More importantly, it would seem a bit unfair that creditors may suffer a loss in bankruptcy proceedings.

    If someone is considering bankruptcy, then paying a 5% penalty on some savings they use to pay off their debts is probably the least of their concerns.
    • grey gym sock
    • By grey gym sock 23rd Mar 16, 9:16 PM
    • 4,053 Posts
    • 3,524 Thanks
    grey gym sock
    I work for a large company who has a defined benefit pension (final salary). I have been paying in to since I was 18. I will be 37 when the LISA in introduced.
    I already have bought my first home. So would only be able to draw on the LISA when I am 60.

    Would it be worth investing in a LISA? and can you have an ISA as well as a LISA? At the moment I have savings in an ISA for maybe one day moving to a bigger property.
    Originally posted by Ads1
    what marginal rate of income tax do you pay? and does your employer have the option of making AVCs via salary sacrifice?
    • MoneyWonder
    • By MoneyWonder 24th Mar 16, 2:21 PM
    • 4 Posts
    • 0 Thanks
    MoneyWonder
    Hello, I have a very quick question.

    If I have a H2B ISA and transfer it into a LISA, then use the LISA for a House Deposit, for that I would claim the 25% bonus. If I continued to use the LISA after using it for the deposit, towards retirement this time, would I still be able to claim a 25% bonus towards retirement or does the bonus stop being paid from when I buy the house? If its the latter and you can't get a double bonus, is it better in the long run to use the H2B ISA to buy a house and get a 25% bonus, then get the 25% bonus from the Gvt on claiming for retirement? Any help with this would be appreciated, thanks.
    • Ed-1
    • By Ed-1 24th Mar 16, 3:06 PM
    • 1,940 Posts
    • 1,038 Thanks
    Ed-1
    Hello, I have a very quick question.

    If I have a H2B ISA and transfer it into a LISA, then use the LISA for a House Deposit, for that I would claim the 25% bonus. If I continued to use the LISA after using it for the deposit, towards retirement this time, would I still be able to claim a 25% bonus towards retirement or does the bonus stop being paid from when I buy the house? If its the latter and you can't get a double bonus, is it better in the long run to use the H2B ISA to buy a house and get a 25% bonus, then get the 25% bonus from the Gvt on claiming for retirement? Any help with this would be appreciated, thanks.
    Originally posted by MoneyWonder
    The bonus is paid in a LISA regardless of whether you withdraw some to buy a house or not.
    • londonlydia
    • By londonlydia 27th Mar 16, 12:13 PM
    • 422 Posts
    • 476 Thanks
    londonlydia
    I'm just annoyed that this is the second ISA where it excludes people who have ever owned a house before, no mater how small or brief. Surely they could just request that it is only for people who don't currently own a house (and haven't done so for X period of time say).
    I got a mortgage with my ex back in 2012, but we broke up 18 months later and he bought my share off me (for a small amount). Now I cant get access to either of the H2B or LISA for that purpose. I'm sure I'm not the only one in this situation - plenty of people come out of divorce badly and end up in rented...why not give these people a chance?
    • masonic
    • By masonic 27th Mar 16, 2:07 PM
    • 9,126 Posts
    • 6,273 Thanks
    masonic
    I'm just annoyed that this is the second ISA where it excludes people who have ever owned a house before <snip>
    Now I cant get access to either of the H2B or LISA for that purpose. I'm sure I'm not the only one in this situation - plenty of people come out of divorce badly and end up in rented...why not give these people a chance?
    Originally posted by londonlydia
    Anyone under 40 can open a LISA, regardless of home ownership.
    • bowlhead99
    • By bowlhead99 27th Mar 16, 2:27 PM
    • 6,606 Posts
    • 11,688 Thanks
    bowlhead99
    I'm just annoyed that this is the second ISA where it excludes people who have ever owned a house before, no mater how small or brief.
    Originally posted by londonlydia
    If you want to take the bonus out of the account at age 60 and not buy a house, you're completely welcome to do that. This is a flexible account which does not have to be spent on buying a house. So it remains a decent account.

    Surely they could just request that it is only for people who don't currently own a house (and haven't done so for X period of time say).
    You will always get people who have been out of the market for a while and want to get into it again (for example, they have been out of the country for a while but still have substantial assets). Still, you have to draw the line somewhere.

    Otherwise there will be people who sell their million pound portfolio of properties, sit in cash and investment funds for a few years, and then ask for government help to buy a house because houses are expensive and it's not fair that they have to pay the full price to buy a house and if londonlydia owned a flat and sold it in 2013 and is getting free money to help her buy another one, why shouldn't they.

    So, it's much much easier, without the pain of means-testing or counting years before reapplication or having a million miles of red tape and terms and conditions etc, to just draw a line in the sand and say the people we want to help are those who have not had a residential property before. If you get yourself on the property ladder and then decide to get off it again, the tax payer doesn't want to pay you to get back on it again. Because the tax payer didn't tell you to get off it.

    As a taxpayer who bought a house more recently than you (without a free handout), I don't think it's my fault that your last investment didn't work out well for you and you decided not to keep owning the place that you'd bought. Sorry to hear about it, but it's not my duty to get you back on your feet after you make a poor choice of investment or partner.

    If you 'come out of divorce and end up in rented' then you still own the assets you had, subject to a fair allocation. So if the property went up in value and you avoided paying rent to a landlord while married, you have still made money. If instead the property went down in value while you owned it, that would imply that things are getting cheaper rather than more expensive so you don't need a handout to find somewhere in the country to buy again.
    Last edited by bowlhead99; 27-03-2016 at 2:29 PM.
    • ZaberStorm
    • By ZaberStorm 27th Mar 16, 10:22 PM
    • 1 Posts
    • 0 Thanks
    ZaberStorm
    Hi everyone 😊 Hope y'all are well.

    New to the site and have a couple of questions about LISA's.

    I am not in a position to invest right now as I have a long term illness. However, next year when I turn 40 (before the cut off) my Folks are planning to give me money as an early gift. Can I open an ISA with that money so even if my condition hasn't changed, I won't miss out?

    Also, if you die before you are 60 does the money get paid to your next of kin or will the State pinch it back?

    Any help would be appreciated 😁
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