2016 Budget - ISA changes

_CC_

edinburgher wrote: »

If we consider it as an investment vehicle to help with the costs of retirement, I am struggling to see the advantage of this over a pension (currently paying basic rate tax)?

I've only briefly looked over it, but I assume the advantages are:

1. You can withdraw the money at any time (although obviously pay the penalty of loss of bonus and a 5% charge)
2. Tax free on the way out

_CC_

andyca wrote: »

He also said that existing help to buy ISAs can be converted to Lifetime ISAs.
I'm already a homeowner but I'm wondering if I can open a help to buy ISA this year and convert it to get the top up next month on £5200.

The HTB ISA is only available to first time buyers as far as I know

Hutchch0920

andyca wrote: »

He also said that existing help to buy ISAs can be converted to Lifetime ISAs.
I'm already a homeowner but I'm wondering if I can open a help to buy ISA this year and convert it to get the top up next month on £5200.

As a homeowner you are not eligible for the Help to Buy ISA which is exclusively for first time buyers.

edinburgher

@ _CC_ #2 there is a fair shout, I assume that we'll be able to stage our pension withdrawls to avoid tax, but it requires effort on our part to do so. Would be nice to have one less thing to think about.

PeteinSQ

Will this ISA have to be a cash ISA or could it be a S&S ISA do you think?

edinburgher

PeteinSQ wrote: »

Will this ISA have to be a cash ISA or could it be a S&S ISA do you think?

The technical paper says that it can hold cash or S&S:

Qualifying investments in a Lifetime ISA will be the same as for a cash or stocks and shares ISA.

Ed-1

andyca wrote: »

He also said that existing help to buy ISAs can be converted to Lifetime ISAs.
I'm already a homeowner but I'm wondering if I can open a help to buy ISA this year and convert it to get the top up next month on £5200.

The lifetime ISA starts April 2017 not next month but H2B ISAs are exclusively for first time buyers so you can't open one if you're not (without lying and potentially facing application fraud consequences).

Ed-1

Am I right in observing that those with Help to Buy ISAs will be able to get the government bonus on these funds on 5th April 2018 (i.e. the end of the tax year 2017/18) without buying a house by transferring into a lifetime ISA?

PeteinSQ

I'll consider one of these ISAs but I'd need to see how it stacks up versus just upping my payment into my pension considering that operates through a salary sacrifice scheme at present (I'm not a higher rate tax payer).

I guess the tax free lump sum at 60 could be quite a useful amount to have at that point.

kidmugsy

It's better than a pension for stand-alone savings for a 20% taxpayer. The boost of 25% essentially just gives you your income tax back, sent into the ISA, but the fact that you can eventually withdraw it all tax-free lets you escape the tax you'd pay on pension withdrawals, currently the equivalent of 15%.

You'd have to hope that future governments let this latter feature survive. The closer you are to 60 when you open this thing, the better your chances of avoiding retrospective taxation.

P.S. Come to think of it, it might be a lovely thing for - say - a woman not earning while looking after young children (or ill parents or grandparents), whose husband can afford to provide the money for her new ISA. Or indeed where the couple are prepared to divert existing savings into the ISA. Getting a 25% boost to compensate for tax you didn't pay: trebles all round! Some youngish people receiving inheritances or gifts might also do well out of it.