New H2B ISA or LISA

60camraman60 · 27 January 2018 at 3:28PM

I have a (now) 18 year old who has had a Halifax "Save4it" childs account since she was a small child. As she wasn't old enough when it was taken out it was in my name. We went in to our local Halifax branch today to change the account holder into her name. She is quite money savvy :money:(Thanks Martin) and decided she wanted to start up a Help 2 Buy ISA but as the rates were abysmal with Halifax she asked for the money to be transferred into her current account with another bank with the idea of moving it to the best H2B account available.
I will be honest and say that the person in the Halifax was great. There was no pressure in trying to sell me an account and she was quite happy to transfer the money.
What she did suggest though was that I had a good look at where she was putting the money.
I think what she was getting at was the potential closure of the H2B scheme and that the time left wouldn't allow my child to build up the full allowance (£12,000) to get the max. £3000.
so Question 1: Is the scheme just closing to new starters in 2019 or is no more money being allowed to be put into existing accounts after it finishes.
and Question 2: Would it be better to start a LISA instead
The money from the Halifax account could drip feed the H2B at the £200 a month rate for 12 month but then it may dry up.
Any help gratefully received.

AirlieBird · 27 January 2018 at 3:41PM

Money can be put into a HTB ISA until 30 November 2029, and the bonus must be claimed by 1 December 2030.

Kim_13 · 27 January 2018 at 3:56PM

Help to Buy ISA's are just closing to new applications in 2019. Once opened, a Help to Buy ISA is designed so that contributions can continue to be made until December 2029. It has to be used for a purchase before December 2030 to get the bonus. The MSE guide to Help to Buy ISA's may help: https://www.moneysavingexpert.com/savings/help-to-buy-ISA

A Lifetime ISA will allow her to earn a much greater government bonus, as £4,000 can be paid in per tax year, with the bonuses paid monthly from the next tax year to enable the bonus to earn interest/have the potential to grow if opting for the Stocks and Shares option. The LISA has to be open for a year before it can be used to buy a property, but as she's only 18 I assume this isn't going to be a problem. As there's no monthly limit on contributions it's possible to earn a £2,000 bonus within a few months, by paying in £4,000 in this tax year and another £4,000 at the start of the next tax year.

A bonus can be accrued much sooner in the LISA and as you don't have to wait until buying to receive the bonus, any bonus earned is safe as soon as it's in the account. As with anything a later government could change the rules and potentially leave Help to Buy holders without a bonus. The Lifetime ISA's only real drawback is the loss of 6.25% of the money she put in if she needs withdraw before age 60 for a reason other than buying a first home. A terminal illness is currently the only exception to the early withdrawal charge. The MSE guide to Lifetime ISA's may be of interest: https://www.moneysavingexpert.com/savings/lifetime-ISAs

Edited to add: Inheriting even a tiny share of a house would mean she would no longer be classed as a first time buyer. If this happened with the Help to Buy she could withdraw all the money with no penalty. If the money was in a Lifetime ISA, the early withdrawal penalty would apply. It's worth considering how likely this is before choosing.

60camraman60 · 27 January 2018 at 4:44PM

Thanks to the both of you for your replies especially Kim_13. A very concise explanation. Was all good until your edit. Now I'm going to have to approach a rather difficult subject with her grandparents.

:(

TheShape · 27 January 2018 at 5:32PM

60camraman60 wrote: »

Question 2: Would it be better to start a LISA instead
The money from the Halifax account could drip feed the H2B at the £200 a month rate for 12 month but then it may dry up.
Any help gratefully received.

If you were to open a cash LISA with Skipton and a property purchase is a long way off, the low rate of interest payable on the Skipton LISA starts to erode the value of the 25% bonus. How long until your daughter is likely to purchase?

If the amount of current savings is not likely to exceed the £4000 yearly LISA allowance for a while (£2400 currently?) and a purchase is a long while off then there is no great rush to open the LISA as even if you didn't use this tax-year's allowance you could still use the next two tax-year's allowances to save £8000. Will your daughter have saved this much by the end of the 19/20 tax year (April 2020)?

Kim_13 · 27 January 2018 at 10:10PM

60camraman60 wrote: »

Thanks to the both of you for your replies especially Kim_13. A very concise explanation. Was all good until your edit. Now I'm going to have to approach a rather difficult subject with her grandparents. :(

Apologies to be the bearer of bad news.

If she buys a house before she inherits there would be no problem, but I thought that you should be aware in case.

A possible course of action may be to open a Help to Buy while they are available, as she would not have a penalty to pay if she inherited before buying. She would just need to close the account and could keep all of the money saved plus the interest earned. If she's ready to buy before she inherits, she'll likely get the 25% bonus (subject to no government changing things in the meantime.) Interest on a Help to Buy ISA is higher than the interest rate on the cash LISA.

She is allowed to hold both a Help to Buy ISA and a Lifetime ISA, so if there is money that she can lock away until retirement, she could put that in the LISA. If she's ready to buy before inheriting a share of a property, she can them choose whether to use the Lifetime ISA or the Help to Buy (assuming it's before the December 2030 HTB bonus deadline.) If the LISA at this stage has accrued more bonus than the HTB would get, that's great and she can use that. She can then have all of her contributions and interest withdrawn from the HTB without penalty.

If she's looking for a return on money above that she can fit into a HTB without locking it away in a LISA, this MSE guide detailing the savings fountain may help, in particular the section on the interest paying current accounts and regular savers: https://www.moneysavingexpert.com/savings/which-saving-account

New H2B ISA or LISA

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