2016 Budget - ISA changes

andyca

Ed-1 wrote: »

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).

Looking at the T&Cs you are right... The first time buyer restriction on the HTB ISA appears to apply on opening. I was hoping the restriction was on claiming the government contribution when buying a house, which I obviously wouldn't do.

If it was that way around a few people might have opened them to get the 4% interest rate I guess.

PeteinSQ

With salary sacrifice you save the NI payments too. That's where I wondered about the difference.

HouseBuyer77

Interesting tidbit from the lifetime ISA information (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508176/Lifetime_ISA_final.pdf):

The government will also explore with the industry whether there should be the flexibility to borrow funds from the Lifetime ISA without incurring a charge if the borrowed funds are fully repaid; for example, some US retirement plans allow 50% to be borrowed up to a maximum of $50,000.

For a 40% tax payer it seems simply contributing more to your pension is a better idea (depending on how far in to the 40% bracket you are), however the government was planning on fiddling with that they backpedalled this time but might not in the future. The ability to grab the lot tax free when you turn 60 is certainly attractive.

Seems the house buying aspect only applies to first-time buyers (if it applied to any house purchase that would be rather nice).

kidmugsy

PeteinSQ wrote: »

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.

The new ISA gives you back your 20% tax by adding it to the ISA. At 60 you'd withdraw tax-free, versus a pension where you'd pay the equivalent of 15% income tax (if rates stayed the same, which they won't). The ISA wouldn't give you the advantage of avoiding your NIC, and even getting the employer's NIC credited too, in whole or in part, if you're lucky. You could look on the new ISA as insurance against the basic rate of income tax rising.

david78

Tom McPhail has just said on MoneyBox Live that the ISA allowance will be £20,000 overall, of which £4,000 may be put into the lifetime ISA for those who qualify for it.

Generation_Rent_1993

Can you use the balance of a Lifetime ISA towards a deposit on your first home, and then continue to save for retirement? It's just that all of the government documentation I have looked at seems to suggest it is a case of either using it for your first home or saving for retirement.

Ed-1

Generation_Rent_1993 wrote: »

Can you use the balance of a Lifetime ISA towards a deposit on your first home, and then continue to save for retirement? It's just that all of the government documentation I have looked at seems to suggest it is a case of either using it for your first home or saving for retirement.

Yes - see chart 1.A here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508176/Lifetime_ISA_final.pdf

You save into it, can buy a first home along the way and withdraw the remainder at retirement. As the bonus is being applied to the account annually at the end of the tax year, unlike a Help to Buy ISA, there's no need to close the account to get the bonus.

mikenolan

Generation_Rent_1993 wrote: »

Can you use the balance of a Lifetime ISA towards a deposit on your first home, and then continue to save for retirement?

Chart 1A in the technical notes would indicate yes.

Ed-1

david78 wrote: »

Tom McPhail has just said on MoneyBox Live that the ISA allowance will be £20,000 overall, of which £4,000 may be put into the lifetime ISA for those who qualify for it.

I've yet to fully understand how this ISA will be designated in terms of cash or S&S. In some places it seems it is fully separate as you can hold one in conjunction with a Help to Buy (cash) ISA.

It's also flexible meaning if the rates are rubbish you can deposit £4,000 right at the end of a tax year, withdraw it at the start of the following tax year and then replace at the end of the next tax year together with an additional £4,000.

Ed-1

Ed-1 wrote: »

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?

The bonus in a lifetime ISA only appears to be paid on new subscriptions from 6th April 2017 (i.e. a max of £1,000 a year on £4,000 of deposits). So in that case there is little to no benefit in transferring a Help to Buy ISA into a lifetime ISA (assuming rates on a lifetime ISA will be worse than a H2B ISA) as the bonus is not payable on previous year funds.