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  • FIRST POST
    • Mogz44
    • By Mogz44 14th Feb 17, 11:14 AM
    • 3Posts
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    Mogz44
    Help to Buy ISA vs LISA
    • #1
    • 14th Feb 17, 11:14 AM
    Help to Buy ISA vs LISA 14th Feb 17 at 11:14 AM
    Hello All,


    I was wondering if anyone could provide me with some clarity on the above title. I currently have an active Help to Buy ISA of which I'm contributing the maximum £200 a month. I have been contributing to this for 12 months and so it stands at a grand total of £3,400 (excluding interest for simplification). To my understanding the LISA will be eligible for a 25% bonus of £1,000 per year on a maximum balance of £4,000.


    My confusion is how the 25% bonuses are paid. From my reading the Help to Buy ISA 25% bonus is paid upon closure of the account so long as the money is being used for a first time house purchase up to the value of £250k. Am I correct in saying the LISA 25% bonus is paid annually for the first year and then monthly there after?


    I understand you can only take advantage of one 25% bonus but as the LISA bonus is paid regularly and in "real time" so to speak how does this effect my eligibility in claiming the Help to Buy bonus should I choose this. Would the government then look to recoup the 25% bonus from my LISA account that has been paid over the lifetime of the account being open?


    Thanks in advance.
Page 1
    • bowlhead99
    • By bowlhead99 14th Feb 17, 11:42 AM
    • 6,420 Posts
    • 11,365 Thanks
    bowlhead99
    • #2
    • 14th Feb 17, 11:42 AM
    • #2
    • 14th Feb 17, 11:42 AM
    In the LISA, the first bonus will get paid early in tax year 2018/19 even though you will have been feeding it with cash in 2017/18. It will then go onto a monthly cycle. When they add the bonus it will be a bonus on everything up to that point, i.e. the contributions of new money directly into the LISA during 2017/18, and transfers in of un-bonused money that came from your HTB account which you closed and transferred into the LISA.

    For example you might have got £3800 in your HTB before you transferred it over (the £3400 now plus £200 allowed on 1 March and £200 on 1 April). You can move that £3800 HTB (containing 2014/15 and 2016/17 money) into a LISA in April and you can contribute up to £4000 of new 2017/18 money into the LISA.

    To give everyone time to bring their HTBs into their LISAs if they want to, and also to allow the providers to get ready for it, they are not going to pay the first bonuses into the LISAs until after end of 2017/18 tax year. At that point you would get the bonus on the £7800 balance. And as you carried on saving in later tax years the bonus money would arrive on a monthly basis.

    Once you get the bonus in the LISA and turn your £7800 into £9750 you will be 'locked in' with a penalty for getting out. So, if you changed your mind and wanted to give up on the whole idea for some reason you could take cash out during 2017/18 before they do the bonus calc. Otherwise if you needed all the saved money in a hurry you would lose 25% penalty on the £9750 and only be left with £7312.50.
    • Mogz44
    • By Mogz44 14th Feb 17, 12:02 PM
    • 3 Posts
    • 0 Thanks
    Mogz44
    • #3
    • 14th Feb 17, 12:02 PM
    • #3
    • 14th Feb 17, 12:02 PM
    Thanks for your initial response.


    If my intention was to fund the LISA with £4,000 a year in a one off lump sum deposit (which I understand is permitted) whilst maintaining the £200 monthly payments to my HTB where does this put me with regards to the 25% bonus?


    Also, from what I understand you can only get a maximum of £1,000 per tax year from the 25% LISA bonus. Meaning the 25% bonus wouldn't pay a £2,700 bonus on a balance of £9,000 ending tax year 2 for example? Would this mean that the LISA only becomes more financially lucrative that the HTB if it's open for more than 3 years, thus superseding the maximum £3,000 bonus offered by the HTB?
    • Ed-1
    • By Ed-1 14th Feb 17, 8:55 PM
    • 1,859 Posts
    • 988 Thanks
    Ed-1
    • #4
    • 14th Feb 17, 8:55 PM
    • #4
    • 14th Feb 17, 8:55 PM
    Thanks for your initial response.


    If my intention was to fund the LISA with £4,000 a year in a one off lump sum deposit (which I understand is permitted) whilst maintaining the £200 monthly payments to my HTB where does this put me with regards to the 25% bonus?


    Also, from what I understand you can only get a maximum of £1,000 per tax year from the 25% LISA bonus. Meaning the 25% bonus wouldn't pay a £2,700 bonus on a balance of £9,000 ending tax year 2 for example? Would this mean that the LISA only becomes more financially lucrative that the HTB if it's open for more than 3 years, thus superseding the maximum £3,000 bonus offered by the HTB?
    Originally posted by Mogz44
    You can only use the bonus from one of a H2B ISA or LISA to fund a first time house purchase.

    No H2B ISA wouldn't be more financially lucrative as you can transfer H2B ISA funds into LISA in addition to contributing £4,000 in tax year 17/18 only, therefore building up a bigger bonus in LISA regardless.
    • zsolmanz
    • By zsolmanz 12th Jun 17, 7:10 PM
    • 11 Posts
    • 3 Thanks
    zsolmanz
    • #5
    • 12th Jun 17, 7:10 PM
    • #5
    • 12th Jun 17, 7:10 PM
    Imagine you have exactly £6400 to save each year.
    If you keep both open, you purchase your house with a £15k deposit in around 5 years (£3k from the government).
    You also have a £25k retirement pot started (since you now can't get money out of the LISA until you're 60) (5k from the government).

    If you go for just the LISA, after the same 5 years you have 25k (5k from the government) for your house deposit, plus a further £12k you've saved somewhere else.

    The latter option gives you the greater deposit, with the association reduction in mortgage, possibly LTV band and thus better mortgage rate.

    The former gives you £3k more government bonus, which seems good, but look again:
    That remaining £12k in option 2 could either be used for even more deposit, or go into a SIPP. With £3k in tax relief it becomes a £15k retirement pot.

    Hence always transfer.
    • neurosurgeon
    • By neurosurgeon 12th Jun 17, 10:44 PM
    • 8 Posts
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    neurosurgeon
    • #6
    • 12th Jun 17, 10:44 PM
    • #6
    • 12th Jun 17, 10:44 PM
    Can you use the LISA for a pension and the HTB ISA to purchase a property or can you only use one or the other?
    • Ed-1
    • By Ed-1 12th Jun 17, 11:02 PM
    • 1,859 Posts
    • 988 Thanks
    Ed-1
    • #7
    • 12th Jun 17, 11:02 PM
    • #7
    • 12th Jun 17, 11:02 PM
    Can you use the LISA for a pension and the HTB ISA to purchase a property or can you only use one or the other?
    Originally posted by neurosurgeon
    You can have a new LISA each year if you want and can use LISAs for both penalty-free withdrawals for property purchase and withdrawals at age 60. But you can't use both a LISA and a Help to Buy ISA for property purchase. There's no point in using a Help to Buy ISA for property purchase if you can use a LISA.
    • zsolmanz
    • By zsolmanz 13th Jun 17, 8:46 AM
    • 11 Posts
    • 3 Thanks
    zsolmanz
    • #8
    • 13th Jun 17, 8:46 AM
    • #8
    • 13th Jun 17, 8:46 AM
    Can you use the LISA for a pension and the HTB ISA to purchase a property or can you only use one or the other?
    Originally posted by neurosurgeon
    Short answer: Yes
    Long answer: Yes but I can't see any reason you would want to.

    The Help to Buy ISA is an awesome tool for people purchasing their first home, and the Lifetime ISA is an even better version of that.
    Whereas the Lifetime ISA is a mediocre retirement savings vehicle which is roughly on par with a SIPP or any other pension (at basic rate tax relief).

    It might be easier to see if we flip it round:
    You're going to save 4k/year into the LISA regardless.
    So what do you do with your remaining money? H2B ISA or SIPP? One severely limits your contributions and can only be spent on a house. It also prevents you from using the bulk of your savings (the LISA funds) on your house purchase.
    The other is a tax-efficient pension saver that locks your money away until you're 57 (and you can only get 25% of it out as a lump sum).

    I guess the question is this:
    Does it make sense to seek the biggest deposit possible, or to put more into a pension?

    I'd argue that reducing the debt you need to take on is the better investment, so that means going for the bigger deposit, which means transferring into the LISA and building that up as much as possible for your house purchase.

    I'd be interested to know if others agree with my assessment. After all, returns on tracker funds at the moment are typically higher than the interest on a mortgage (from what I've seen)...
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