Lifetime ISAs guide

P1Fanatic

King_Of_Fools wrote: »

Do you mean your employer contributes £40,000 into your pension each year?

No I mean I pay the maximum amount that they match (well they actually double it) so I can therefore only increase my own personal contributions. I only mentioned that as lot of things I have read online about LISA say workplace pensions make more sense first.

King_Of_Fools

P1Fanatic wrote: »

No I mean I pay the maximum amount that they match (well they actually double it) so I can therefore only increase my own personal contributions. I only mentioned that as lot of things I have read online about LISA say workplace pensions make more sense first.

If you are paying 40% tax then you can still get 40% tax relief (25% extra gets paid into your pension and 25% gets returned to you) on your extra personal contributions so that could be better than the 25% bonus on the LISA.

If you are not paying 40% tax or your personal contributions already cancel out the amount of 40% tax you pay then the LISA might be an option.

P1Fanatic

King_Of_Fools wrote: »

If you are paying 40% tax then you can still get 40% tax relief (25% extra gets paid into your pension and 25% gets returned to you) on your extra personal contributions so that could be better than the 25% bonus on the LISA.

If you are not paying 40% tax or your personal contributions already cancel out the amount of 40% tax you pay then the LISA might be an option.

Yes I am paying the higher rate 40% tax. I am not sure I follow with the 25+25% scenario you mention? I understood that SMART pension payments mean the tax & NI breaks net you a higher pension contribution for a lower cost. But where does 25% come into it? The 25% on the LISA is guaranteed (as long as they honour it but theoretically until your 50) plus interest growth.

I think I will probably up my pension contribution by 1 or 2% and also run with the LISA just for a better spread, more flexibility and a guaranteed return (at least for the short term).

I just need to hope that providers pull their finger out and I am actually able to apply before 15th April which will be tight.

King_Of_Fools

P1Fanatic wrote: »

Yes I am paying the higher rate 40% tax. I am not sure I follow with the 25+25% scenario you mention? I understood that SMART pension payments mean the tax & NI breaks net you a higher pension contribution for a lower cost. But where does 25% come into it?

I am not sure what a SMART pension is but I assume you are paying into it via salary sacrifice rather than in the normal way so the 25% does not apply as you have already avoided the tax.

For this scenario, it is slightly different but the pension is even better.
If you sacrifice £100 of your salary before tax then your pension pot will grow by £100.

If you are paying 40% tax (plus 1% NI) and you do not sacrifice that £100 then you will receive £59 after tax and NI in your pay packet. That £59 can then be invested in a LISA but even with the 25% bonus will only be worth £73.75 rather than £100.

If you are paying 20% tax (plus 11% NI) and you do not sacrifice that £100 then you will receive £69 after tax and NI in your pay packet. That £69 can then be invested in a LISA but even with the 25% bonus will only be worth £86.25 rather than £100.

lbart68

Hi,

Just wondering if somebody could clarify something for me... The official government document for lifetime isa's states

"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."

So if I have £4000 in my help to buy isa in April and transfer it into the lifetime iSA and in the same year, put the normal £4000 into the account... Would I get £2000 bonus or still just the £1000 standard bonus?

Thanks!

P1Fanatic

lbart68 wrote: »

Hi,

Just wondering if somebody could clarify something for me... The official government document for lifetime isa's states

"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."

So if I have £4000 in my help to buy isa in April and transfer it into the lifetime iSA and in the same year, put the normal £4000 into the account... Would I get £2000 bonus or still just the £1000 standard bonus?

Thanks!

Pretty sure the max you get the bonus on is £4k per year. Its still unclear if you can pay in more ie up to your annual tax free limit but I would think not as gets too complicated.

bowlhead99

lbart68 wrote: »

Hi,

Just wondering if somebody could clarify something for me...

The rules for this are in the block of text you quoted from the government document.

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.

So, it is completely clear from the last sentence that if you transfer £4000 into your LISA in April 2017, you will receive a bonus on the full amount of it; and you will also receive a bonus on your LISA contributions.

From the first sentence, you can see that if your contributions into the transferred HTB were all before the start of the 2017/18 tax year, you will have an unrestricted £4000 of LISA allowance for new contributions in 2017/18.

From the second sentence, you can see that if some of the contributions into the transferred HTB were made after the start of the 2017/18 tax year, your LISA allowance for new contributions in 2017/18 will be reduced by the amount of those contributions made to the HTB in the 2017/18 year.

So if I have £4000 in my help to buy isa in April and transfer it into the lifetime iSA and in the same year, put the normal £4000 into the account... Would I get £2000 bonus or still just the £1000 standard bonus?

Well, looking at the guidance given above:

If the £4000 in the HTB ISA has been saved up before 6/4/2017, you can transfer it into the LISA and you will get a bonus on all of it, and you will not have used any of your 2017/18 LISA allowance so you can contribute another £4000 of new money for 2017/18 into the LISA and get a bonus on that too.

So, £1000 bonus on the £4000 transfer in and £1000 transfer on the £4000 of new money.

If the £4000 in the HTB ISA in April was not all saved up before 6/5/2017 - for example it was £3800 by the end of this tax year and you'd added £200 more on 10 April - then you can still transfer the whole £4000 into the LISA and get the £1000 bonus on it.... *but* the 2017/18 annual allowance for new money put into the LISA is reduced by the £200 you'd added to your HTB ISA in the first few weeks of the 2017/18 year. So there would only be £3800 of remaining allowance in the LISA for the rest of the year, with a maximum available bonus of £950.

So, in that example it would be £1000 bonus on what you transferred in from the HTB (which included £3800 of prior year money and £200 of current year money) ; and then £950 bonus on the £3800 of current year money which was paid directly into the LISA ; total:£1950.

sineadw88

Hi,

If I have a help to buy ISA and my partner opens a LISA can we combine these and get both bonuses when we buy our first home together next year? Or is it only one bonus on a property purchase?

Thanks!

S

bowlhead99

sineadw88 wrote: »

Hi,

If I have a help to buy ISA and my partner opens a LISA can we combine these and get both bonuses when we buy our first home together next year? Or is it only one bonus on a property purchase?

You can both use your bonuses (from either HTB or LISA) if you are both first time buyers who will live in the property. If you personally had both a HTB and a LISA you would have to decide which one to use, as you and your partner can only use one each (i.e. two bonuses between two people, not three or four).

If your partner wants to do a LISA, your property purchase will need to be at least 12 months after he has had the LISA open, as that's the minimum holding period to be allowed to withdraw LISA money and get and keep the government bonus on it. So assuming he does this in April you should be good to go from about April 2018 onwards.

To maximise the bonuses you can get at that point:
- if you're under 40 in April you should transfer your HTB into a LISA once available and keep contributing to the LISA, as the max in a LISA is £4k a year while the max in a HTB is only £2400 after the first year (£200pm).

- also, your partner should open a HTB as he can put £1200 into one right now and then 3x £200 before the end of this tax year, and then he can transfer it into his new LISA once they become available in April or beyond.

The more money you have in the two accounts on which you are claiming the bonus, the bigger the total bonus - and a bonus of 25% free money is better than any other investment return you could reasonably expect to make by any other method.

adamh87

asc1991 wrote: »

There needs to be some maths done on this....

The 25% is great, especially if Halifax give 4% pa. like they did with the Help to Buy. That 4% also applies to the 25% annual bonus.

However my funding circle account yields about 12% (but let's be conservative and say 8% as it's never a guaranteed amount). Because you only get the 25% once for every £ you put into the lifetime ISA - it means the longer I have the account the worse the deal is.

Assuming a 4% interest from the bank + 25% annual government bonus (only on the money payed in that year)
Year 1 you'd make 29%
Year 2 you'd make 14.9%
Year 3 you'd make 10.9%
and so on and so forth, essentially the annual amount you make decreased every year.

I'll have to do some maths to determine how long it would take for the Lifetime ISA to be less beneficial than alternative investments.

Hope this makes sense to you all.

This is a great guide, and far beyond my mathematical knowledge (sadly!)

Martin's article says that after April 2018 the bonus will be paid on a monthly basis. So theoretically...

I have a maxed-out HTB ISA, if I then go through the transfer process in 17-18, fill up the allocation in that tax year then in late April 2018, dump another £4k in, I'd get effectively 3 years bonus in 2 years and a month? (assuming I can find somewhere to buy then...)