Lifetime ISAs guide

carhandle

Ed-1 wrote: »

Yes............

Oh. Not so attractive then if i can't make any deposits while it sits for 10 years.

ians1985

carhandle wrote: »

Oh. Not so attractive then if i can't make any deposits while it sits for 10 years.

watch martins video (search youtube for "Martin Lewis – are Lifetime ISAs right for you?". im not allowed to post links as a new user ) he says you can keep paying in between 50-60 if you want, just wont get the 25%. it effectively becomes a normal isa.

Ed-1

ians1985 wrote: »

watch martins video (search youtube for "Martin Lewis – are Lifetime ISAs right for you?". im not allowed to post links as a new user ) he says you can keep paying in between 50-60 if you want, just wont get the 25%. it effectively becomes a normal isa.

I believe they decided against allowing contributions beyond age 50 so that all contributions are "bonus-able" to ease system development and administration complexities.

Lotsapedals

How much needs to be in the H2B ISA before transferring to a LISA to receive a bonus on both the H2B and the LISA? £1600?

Ed-1

Lotsapedals wrote: »

How much needs to be in the H2B ISA before transferring to a LISA to receive a bonus on both the H2B and the LISA? £1600?

Everything transferred into a LISA gets a bonus. Transfer £1 into LISA and you'd get a 25p bonus.

bowlhead99

Lotsapedals wrote: »

How much needs to be in the H2B ISA before transferring to a LISA to receive a bonus on both the H2B and the LISA? £1600?

Any amount.

The HTB has a minimal limit to claim the bonus at the time of house purchase because they don't want to have to mess around for hours of admin when someone is urgently trying to buy a house and moans that it's not fair that their solicitor didn't want to chase down £25 from the government on their £100 last-minute ISA deposit. The message is, use it for its proper purpose (saving to build your deposit), or not at all.

However once you move your HTB money into the LISA it becomes part of a bigger project for you, with greater amounts of money being able to be saved over potentially a very long period.

So you can close your HTB and transfer its contents (£100 or £1000 or £1600 or £3000 or whatever) into the LISA, and keep adding more to the LISA up to the annual limits; then at end of the 2017/18 tax year the ISA provider will just collect 25% bonus on the overall total at that point, whatever the figure is, and dump it into the LISA; then on an ongoing basis through 2018/19 and beyond, you will be getting 25% matching bonuses to follow each monthly contribution you make.

At some point you can take the LISA money and use it on a house purchase subject to making all the right declarations etc but the bonus money will have already been claimed within the LISA and the solicitor will not be having to run around chasing for it.

At least, that's the theory as I understand it.

skipfeeney

What is the chance of the government raising the age limit past 60 before you can withdraw it?

Dottor_Ingravallo

Can anyone clarify what happens if you have a LISA and use it to buy a house that costs more than £450,000?

If I were to deposit £200 a month for 5 years,a compound interest calculator suggests that at a 2% interest rate, I would end up with £12,630.49. On top of this, I would have got £600 a year bonus from the govt, so I would end up with £15,630.49.

The rule seems to be that you face a 25% penalty for withdrawing for a non-bonus approved thing. If I withdrew everything, that would leave me with £11,722.87.

That is less than the £12,000 I have deposited over the 5 years - so it would have been better off in even the lowest interest rate cash ISA. Is that right?

If there is a chance that the house that my partner and I buy in 5 years time is over £450,000, then I should look elsewhere?

bowlhead99

Dottor_Ingravallo wrote: »

The rule seems to be that you face a 25% penalty for withdrawing for a non-bonus approved thing. If I withdrew everything, that would leave me with £11,722.87.

That is less than the £12,000 I have deposited over the 5 years - so it would have been better off in even the lowest interest rate cash ISA. Is that right?

Yes. The penalty is greater than the bonus.

LISA was conceived as a long term investment product (well, either as an investment for retirement or for buying an important long term asset like a house). There is a penalty to dis-incentivise people from pulling money out of the product so that people don't blow their retirement savings on a Ferrari at age 50 or blow all their house deposit fund on a night out at the cinema or a takeaway pizza when the mood takes them.

They don't prohibit withdrawals, they just make sure you think twice about doing them, by taking back the bonus you received and a bit more.

The basic maths (ignoring interest or investment returns) would be:
put £1000 in LISA: get 25% bonus, it turns into £1250;
take out the £1250: pay 25% penalty, you'll get £937.50, you are down 6.25%.

If there is a chance that the house that my partner and I buy in 5 years time is over £450,000, then I should look elsewhere?

It depends what the chance is, doesn't it.

If there is a slim 0.1% chance that you won't have a qualifying house purchase, then there is a 99.9% chance you will get 25% bonus and a 0.1% chance you will take a 6.25% loss. So, that's a good deal to take.

If there is a 90% chance you won't have a qualifying house purchase, then there's a 10% chance you would get 25% bonus and a 90% chance you will take a 6.25% loss. So that's rather less compelling.

Of course, you don't *have* to take a penalty, you could just leave the money invested in investments until you were 60, but you might not be able to afford to do that if you need the house in a hurry and don't have other funds available.

If you are a lot less than 50/50 on whether you'll eventually be buying a property that qualifies, your other main option is to use a help to buy ISA. That only takes £2400 a year instead of £4000 a year and maxes out at a £3k bonus per person, so less total free money is going to be available to you in the same timescale - but withdrawals are penalty-free.

If you were doing HTB ISA instead of LISA and had spare money available to save beyond the £200pm (as most people saving for a £400k house usually do), you'd need to find a high-interest home for it.

dtl

Is it just me, or are the lifetime isa rules age discrimination?

Many of us over 40 had our retirement plans absolutely hammered when our employers unceremoniously kicked us out of final salary pensions, got kicked in the teeth when the government allowed employers to index what little value we had in our now deferred final salary pensions to CPI instead of RPI, and now we're getting shafted by them because we're being locked out of the LISA!