2016 Budget - ISA changes

mikenolan

Ed-1 wrote: »

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.

If you withdraw you'll lose the government contribution, interest on it, and get charged 5%, so no you couldn't do what you suggest.

d70cw6

Ed-1 wrote: »

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.

if you withdraw you lose the bonus.

david78

You can only get the free cash in a Help to Buy ISA or the Lifetime ISA (not both). I read it that the Lifetime ISA will replace the Help to Buy ISA, either immediately for those that choose to transfer to it, or after 2019 when the Help to Buy ISA will cease.

d70cw6

mikenolan wrote: »

If you withdraw you'll lose the government contribution, interest on it, and get charged 5%, so no you couldn't do what you suggest.

unless below point happens:

1.22 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.

Ed-1

mikenolan wrote: »

If you withdraw you'll lose the government contribution, interest on it, and get charged 5%, so no you couldn't do what you suggest.

d70cw6 wrote: »

if you withdraw you lose the bonus.

Good point .

Ed-1

Ed-1 wrote: »

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.

However I've just reached point 1.16 which changes this during tax year 2017/18. Transfer H2B into Lifetime ISA during this tax year only and the bonus is paid on these funds as well (presumably on the full amount transferred).

Ed-1

david78 wrote: »

You can only get the free cash in a Help to Buy ISA or the Lifetime ISA (not both). I read it that the Lifetime ISA will replace the Help to Buy ISA, either immediately for those that choose to transfer to it, or after 2019 when the Help to Buy ISA will cease.

Point 1.10 clears up where the Lifetime ISA sits in terms of holding more than one ISA:

Savers will be able to contribute to one Lifetime ISA in each tax year, as well as a cash ISA, a stocks and shares ISA, and an Innovative Finance ISA, within the new overall ISA limit of £20,000 from April 2017.

dc1809

If I transfer the help-to-buy ISA I have already set up across to the Lifetime ISA does that count towards the 4000 a year limit and is it eligible to receive the extra 25%?

Marvel1

Will need to look in to this a bit more, the small fine print, as next year will be 35 (scary), but will not have a chance to clear mortgage in 5 years, possibly 10 at most, my plan is what I pay in mortgage now will be used as savings once house paid for.

Ed-1

dc1809 wrote: »

If I transfer the help-to-buy ISA I have already set up across to the Lifetime ISA does that count towards the 4000 a year limit and is it eligible to receive the extra 25%?

Yes although if you want to buy before 6th April 2018 you shouldn't transfer all the H2B ISA funds across to a Lifetime ISA as you can only claim the bonus for a house purchase on the Lifetime ISA after holding the account for 12 months:

During the 2017-18 tax year only, those who already have a Help to Buy: ISA will be able to transfer these funds into a Lifetime ISA and receive the government bonus on those savings. Any Help to Buy: ISA funds that were saved prior to the introduction of the Lifetime ISA on 6 April 2017 will not count towards the Lifetime ISA annual contribution limit. Contributions made after this point to the Help to Buy: ISA and transferred across will count against the annual contribution limit. At the end of the tax year they will receive a bonus on the full amount of the transferred Help to Buy: ISA and their Lifetime ISA contributions. In line with the normal Lifetime ISA rules, Help to Buy: ISA savers will be able to purchase a first home with the government bonus 12 months from the date of opening their Lifetime ISA.

Interesting that it says H2B ISA transfers to Lifetime ISA will count against the annual contribution limit which is £4,000 after 2017/18 tax year:

'Individuals will be able to transfer savings from other ISAs as one way of funding their Lifetime ISA. In line with existing rules, transfers from previous years’ ISA contributions do not affect that year’s £20,000 overall ISA limit'. If the £4,000 annual contribution limit to a Lifetime ISA reduces the £20,000 ISA allowance and transfers into a Lifetime ISA count against the £4,000 annual contribution limit but not the £20,000 ISA allowance, how does that work?

Previous year funds ISA transfer --> Lifetime ISA counts against £4,000 Lifetime ISA limit (so must not exceed it) but not against the overall £20,000 ISA limit.

Current year funds ISA transfer --> Lifetime ISA counts against both the £4,000 Lifetime ISA limit and the overall £20,000 ISA limit.