Lifetime ISAs guide

Ricardo1980

Hello,

I know that in theory I can use a Shares ISA in a Lifetime ISA.
Can I use Innovative Finance ISA inside a Lifetime ISA (basically, lending)?

It could be possible to change the Shares ISA to IF-ISA (or the other way) that is inside the Lifetime ISA?

Thanks!

Grylls

I'm in my late thirties. If I open a LISA and subscribe for the next few years, does anyone know what happens in the year you turn 40?
I (think) by then, the bonus will be paid monthly - so in that final year when I qualify for the bonus will I receive the bonus for the few months following the April but not in the months following my birthday in June?

Ed-1

Grylls wrote: »

I'm in my late thirties. If I open a LISA and subscribe for the next few years, does anyone know what happens in the year you turn 40?
I (think) by then, the bonus will be paid monthly - so in that final year when I qualify for the bonus will I receive the bonus for the few months following the April but not in the months following my birthday in June?

Nothing happens in the year you turn 40. You just can't open a LISA after then if you don't have one open already (you can still open one to transfer in an existing LISA).

Bonuses will be paid monthly from April 2018.

You can't pay anything in after you turn 50.

Jeems

Ed-1 wrote: »

You can't pay anything in after you turn 50.

Thats a big drawback for the LISA, for me anyway. I am not a first time buyer so will be using this for retirement money. My concern is that when you hit 50, LISA rates may be low, in which case you are forced to keep quite a large lump sum for 10 years without being able to touch it!

bowlhead99

Jeems wrote: »

Thats a big drawback for the LISA, for me anyway. I am not a first time buyer so will be using this for retirement money. My concern is that when you hit 50, LISA rates may be low, in which case you are forced to keep quite a large lump sum for 10 years without being able to touch it!

If you are under 40 now and saving for retirement (unable to touch it until age 60), it is a little bonkers to be just saving the money as if it were an emergency fund / rainy-day fund, i.e. held as cash. Inflation will destroy its value. With a 20+ year view, you should be using investment funds inside the LiSA (holding things like shares, bonds and property).

As such, there are no such things as "LISA rates being low" for you to worry about, because - unlike a homebuyer saving for a deposit over two to five years - you would not be using a cash-based version of the account, so you would not have a fixed interest rate- you would have investment-based growth.

Also, the drawback you are complaining about ("forced to hold it without being able to touch it") is not a problem that exists. You can pay a penalty, and touch it, to your heart's content.

One of the main reasons that someone (who could not qualify to use the bonus funds for a house deposit) would choose to use the LISA as a vehicle to save for retirement, is the ability to pay a penalty and access the funds if they had made the grim realisation that they had over-committed to their retirement plan and really really needed to access the funds to get through some kind of personal or family financial crisis.

If they were not looking for that sort of flexibility, and were satisfied that they would definitely not need the funds until their late fifties, then they could build their retirement funds inside a pension instead, benefiting from income tax relief that was potentially quite a bit higher than the LISA bonus (dependent on personal circumstances).

Jeems

bowlhead99: Good post, very helpful. A couple of thoughts.

The reason I like the LiSA is because of the extra 25% the government contribute to it each year.

I could just hold my investments inside a normal S&S isa, I wouldnt need to limit myself to the 4k a year I could put into the LiSA. With this in mind, I wouldnt want to touch it before I hit 60 as I'd lose all the government contributions and pretty much waste 25 years of savings.

How about 4k a year into a cash LiSA and the rest of my isa allowance into a S&S? Given my circumstances (early 30's, decent cash reserves) should I just go S&S for both LiSA and normal ISA?

bowlhead99

Maybe you are missing the point, which is:

Personal pensions can hold all the same sort of investments as S&S ISAs, and can be accessed before the age of 60 (though not many years earlier). They are ideal for investing money now towards what you will want to live off from your late 50s.

Say you earn something like £30000 this year and are a basic rate tax payer, paying 20% tax. Out of your paycheques, you decide that you will be putting a couple of months salary towards retirement. So that's £5000 gross, or £4000 net.

One option is to put the £4000 into a LISA. The government give you a special "25% bonus" making it £5000. You then invest that towards retirement. At age 60 when you have given up work and need some money to tide you over until state pension or other pensions kick in, n your late 60s... you can take all that £5k, plus all the investment growth over 20-30 years, and it's probably turned into £20k. This gives you £10k a year to live on for a couple of years.

Alternatively,
Take your £4000 of net salary this year and contribute it to a personal pension. The pension provider collects basic rate tax relief for you and grosses it back up to the £5000 it was before you paid your income tax. The gross up is for 20% of the £5000, which is the same £1000 "bonus" that the LISA gave you (25% of the £4000). You use the money to buy £5000 of investments in your pension instead of in the LISA.

You then hold investment funds inside the pension until you get to age 58 or so, at which point you have given up work and want some money to tide you over until your state person or other pensions kick in. The £5000 has turned into £20k ish and you use that money to draw £10k a year for two years.

So, if you are willing to lock up your money until almost age 60, they pension is no worse a prospect. You get slightly earlier access, and subject to salary levels, the pension can take up to £40k year of gross contributions (£32k net), not just the £4k in the LISA.

The pension is an even better deal if you were a high rate taxpayer on a £50k salary instead of a £30k one and paying 40% income tax instead of 20%. Because you would still have to put £4k into a LISA to turn it into £5k with the gov't bonus - but you would only have to put £3k net salary into a pension to turn it into £5k with tax relief.

So, someone who is not going to be using their LISA money for a house deposit and is only using it for a long term objective like retirement, might be better off looking at pensions rather than being drawn to the LISA for some "bonus" which is no more than what you could already have been getting with pensions for years.

Like I said, one reason to use LISA instead of using a pension is the ability to trash it and rip some money out of it by way of lost bonus and penalty if you are in dire need. You can't do that with a pension as there is no access even by paying penalty. The existence of that opportunity is one reason I might put a small amount into a LISA if I had been allowed, even as a high rate taxpayer who would stand to get a better "bonus" through use of pensions.

theburningcat

Is it possible to hold shares in my own (private limited) company with a LISA (or a S&S ISA) so that a % of my dividends are tax free?

bowlhead99

theburningcat wrote: »

Is it possible to hold shares in my own (private limited) company with a LISA (or a S&S ISA) so that a % of my dividends are tax free?

No, because your company shares are not listed on a stock exchange so the isa manager is not allowed to buy them.

If your company wanted to set up a SSAS pension scheme, the pension could hold up to 5% of your company's shares and it could also make loans to your company. Depending on the amount of money and type of business involved, this may be more hassle and cost than you want, for the tax efficiency opportunities.

jake838

hi all,

first post here so bear with me, ive been doing some research on moving money from my Help to buy isa to lifetime isa. on the website martin has come up with a plan of.....

Rule no. 4 – Unsure when you’ll buy? Max out a Help to Buy ISA and put £1 in a LISA. Again, there’s a schedule to follow to max this out…
– Open a top Help to Buy ISA now and save to the max in it.
– On 6 April 2017 open a LISA with only £1. That way the clock has started on the ‘you must have held it a year’ rule.
– If you’ve more savings to put away, use normal top savings accounts.
– In March 2018 (before the tax year ends) if you’re not close to buying, transfer the Help to Buy ISA into the LISA. And also take any money out of normal savings to put in the LISA up to £1,600 (the LISA limit minus £2,400 – a year’s maximum Help to Buy contributions). This way you’ll have maxed out your contributions for when you buy (if you aren’t convinced you’ll definitely buy at some point, stick with a Help to Buy ISA, it’s safer).

My question is i thought you wernt allowed to pay into more than one ISA per tax year? so how can i open a LISA with £1 and continue to pay into my HTB ISA in the same tax year?

Thanks in advance for the help.