Lifetime ISAs guide

masonic

sequin12 said:

masonic said:

sequin12 said:

Hi, I used my saving in my Lisa towards an exchange deposit on a new build.

Am I able to contribute to the Lisa again for this tax year, and use the savings towards completion?

I have £8k in a savings account, and am thinking I could put £4k in my LISA, and claim the bonus for remainder of the deposit on completion. Completion is estimated for end of may.

Yes, you are permitted to make multiple penalty free withdrawals between the initial deposit and completion as long as they are all used to cover the purchase price. However, we are in the 6th April - 5th May bonus claim period, so you might not actually receive the bonus in time for completion. If not, then you'd have the choice of retaining your LISA and using for retirement, or accepting a £750 bonus after early withdrawal to use as you wish.

Thank you,

Are you saying the bonus has to be paid into the LISA account before completion?

If you wanted to get it out penalty free, it would need to be paid a week or two ahead of completion to give your conveyancer time to process the withdrawal. Typically the bonus is credited 2-3 weeks after the end of the claim period (you'll know from past experience how quickly your provider normally adds it), so I wouldn't bank on the bonus being available in time to use towards completion. You may end up with it being credited to your LISA after your final withdrawal is made and past the point it could be used for completion.

Alexland

masonic said:

If you wanted to get it out penalty free, it would need to be paid a week or two ahead of completion to give your conveyancer time to process the withdrawal.

You know this but for clarity to sequin12 - the bonus, if added too late for the property purchase, could be left in the LISA wrapper (and transferred to a S&S provider and invested to likely maintain or grow spending power relative to inflation) for penalty free withdrawal from age 60. Further money could be added into the LISA each tax year until age 50 for more bonuses.

Why take £750 when you can have 33% more invested and hopefully growing over the long term with avoiding the withdrawal penalty covering the first 25% of any market drop? Even if you were cautious and picked a balanced risk 60/40 multi asset fund then it's unlikely the account valuation would go much below £750 even if a full stock market crash happened the next day before any gains had started accumulating. Almost a risk free investment although yes I should say your money is at risk if the world ends with all the big companies going belly up and everyone defaulting on their debt.

sequin12

Okay, thank you, one more follow up question out of curiosity.

The terms of the LISA say once funds are withdrawn, completion needs to take place within 90 days plus a further 60+30 days if required. What happens if completion is delayed beyond both extensions?

"When a property purchase is proceeding towards completion but is not expected to complete within 90 days of withdrawal of the funds, the investor’s conveyancer can ask the Lifetime ISA manager for a 60 day extension followed by a further 30 day extension, if required."

eskbanker

sequin12 said:

Okay, thank you, one more follow up question out of curiosity.

The terms of the LISA say once funds are withdrawn, completion needs to take place within 90 days plus a further 60+30 days if required. What happens if completion is delayed beyond both extensions?

"When a property purchase is proceeding towards completion but is not expected to complete within 90 days of withdrawal of the funds, the investor’s conveyancer can ask the Lifetime ISA manager for a 60 day extension followed by a further 30 day extension, if required."

Your conveyancer has to return the money to the ISA provider (the subject of this guidance):

If the house purchase fails or does not complete within 90 days (or 150 days or 180 days with the extensions) after the withdrawal from a Lifetime ISA the investor’s conveyancer must:

• inform you that the purchase has not completed
• return the whole amount withdrawn in full to you, or give an explanation for any shortfall in the amount repaid
• confirm the investor’s name and address and the withdrawal Lifetime ISA account number
• tell you their unique professional body registration number

The amount returned to you must be immediately repaid into the Lifetime ISA account.

https://www.gov.uk/guidance/lifetime-isa-withdrawals-for-a-first-time-residential-purchase#completion-of-first-residential-purchase

bonif

Currently, the recommended cash LISA is Moneybox, but I'm trying to understand why. A 4% rate is quoted, but am I understanding correctly that it is not actually 4%? It seems to be 3.25%, plus a 0.75% one-off bonus - is that right? So it sounds like it's the best option for the first year, but after that wouldn't it be beaten by the 3.74% Bath Building Society option, as long as you aren't looking to transfer in money from another ISA? Is there something I'm missing? I don't really know much about this sort of thing...

masonic

bonif said:

Currently, the recommended cash LISA is Moneybox, but I'm trying to understand why. A 4% rate is quoted, but am I understanding correctly that it is not actually 4%? It seems to be 3.25%, plus a 0.75% one-off bonus - is that right? So it sounds like it's the best option for the first year, but after that wouldn't it be beaten by the 3.74% Bath Building Society option, as long as you aren't looking to transfer in money from another ISA? Is there something I'm missing? I don't really know much about this sort of thing...

It's a 0.75% bonus added to the 3.25% rate for the first year. Given that LISAs aren't as easy to transfer around as other accounts, I too would prefer a clean payer.

jrh22542254

masonic said:

bonif said:

Currently, the recommended cash LISA is Moneybox, but I'm trying to understand why. A 4% rate is quoted, but am I understanding correctly that it is not actually 4%? It seems to be 3.25%, plus a 0.75% one-off bonus - is that right? So it sounds like it's the best option for the first year, but after that wouldn't it be beaten by the 3.74% Bath Building Society option, as long as you aren't looking to transfer in money from another ISA? Is there something I'm missing? I don't really know much about this sort of thing...

It's a 0.75% bonus added to the 3.25% rate for the first year. Given that LISAs aren't as easy to transfer around as other accounts, I too would prefer a clean payer.

Yes so would I. I am gifting £4k per year from my income to my children who invest in moneybox. The interest rate has now dropped to 3.25% which is hardly a market leading rate and neither is bath building society at 3.74% 
So assuming the 3.25% is 2.5% below the best long term ISA fix I  work out that the 25% tax benefit (£1k) is eaten away after about 10 years !
So given the poor interest rates and assuming you only want to use a LISA for retirement planning would you just be better putting the money into a normal cash ISA (virgin were offering 5.75% not that long ago on its 1 year fixed rate ISA)? 
Or do you hope cash LISA rates will become more competitive ? History suggests they will not ! Just why are they so poor ?    

jrh22542254

eskbanker said:

Mcfaggen said:

masonic said:

Mcfaggen said:

I had somehow managed to miss that S&S LISAs were a thing. I’ve got four years full Cash LISA contributions but had been planning to save it for the full term & then waiting for it to be available to do something with after penalties were not applicable. 

Presume S&S LISAs have the same age restrictions? I can switch post-40? Are there fees involved at both ends if I switch (I.e. close the cash LISA= fee / open S&S LISA = fee)? 

There are no fees to transfer a cash LISA to a S&S LISA. S&S LISAs will have an investment management charge, as with any investment account (including pensions). In theory it should be possible to switch post-40, but in practice providers have not set up their systems to allow it, so as things stand over 40s with a S&S LISA are stranded with their current provider.

Thanks. I’m in a Cash LISA, so would switching post-40 be unlikely then? My provider wouldn’t let me go & no one would want me to join anyways? 

The issue is that no S&S LISA providers will open an account for an over-40 in order to accept transfers from other LISAs - the scheme rules dictate that LISAs can't be started (for the first time) after 40 but clumsy implementations of these rules by the S&S LISA providers don't differentiate between starting a new LISA for the first time versus opening one specifically to make a transfer (which should be allowed).

Question about cash LISA to S&S LISA transfers. Can this be done with a moneybox cash LISA and what are the best options please? 

masonic

jrh22542254 said:

masonic said:

bonif said:

Currently, the recommended cash LISA is Moneybox, but I'm trying to understand why. A 4% rate is quoted, but am I understanding correctly that it is not actually 4%? It seems to be 3.25%, plus a 0.75% one-off bonus - is that right? So it sounds like it's the best option for the first year, but after that wouldn't it be beaten by the 3.74% Bath Building Society option, as long as you aren't looking to transfer in money from another ISA? Is there something I'm missing? I don't really know much about this sort of thing...

It's a 0.75% bonus added to the 3.25% rate for the first year. Given that LISAs aren't as easy to transfer around as other accounts, I too would prefer a clean payer.

Yes so would I. I am gifting £4k per year from my income to my children who invest in moneybox. The interest rate has now dropped to 3.25% which is hardly a market leading rate and neither is bath building society at 3.74% 
So assuming the 3.25% is 2.5% below the best long term ISA fix I  work out that the 25% tax benefit (£1k) is eaten away after about 10 years !
So given the poor interest rates and assuming you only want to use a LISA for retirement planning would you just be better putting the money into a normal cash ISA (virgin were offering 5.75% not that long ago on its 1 year fixed rate ISA)? 
Or do you hope cash LISA rates will become more competitive ? History suggests they will not ! Just why are they so poor ?    

LISAs are a niche product, with little competition in the market, and a high regulatory burden which puts additional training and compliance costs on firms that offer them. Savers using cash LISAs pay the price of this. I can only see the situation getting worse not better.

For retirement, the investment horizon makes cash unsuitable, especially for those who are far from retirement. Beating inflation over the long term using cash savings options is not usually very feasible, which is why investments are preferred for the long term. Transfer to a S&S LISA would be a very sensible move. The good news is that S&S LISAs don't restrict your access to good investment options, and the charges of the cheapest providers compare favourably with other retirement vehicles, such as a SIPP. However, there is a tax relief aspect to consider when it comes to new contributions vs pensions, especially workplace pensions. See https://www.moneysavingexpert.com/savings/lifetime-isas/#retirement

AJ Bell is an option to consider, as they have very low charges for a higher value LISA if you are happy using ETFs rather than open-ended funds, and access to whole of market. An afternoon reading around the topic of passive investing at Monevator would be time well spent if this is unfamiliar territory (see https://monevator.com/category/investing/passive-investing-investing/ and links therein). Essentially you can broadly mimic what Nutmeg (or a pension default fund would do for you) on the investment side, but for less.

thelawnet

• there is a serious error in the first line of the introduction.

"A Lifetime ISA (LISA) can be opened by anyone aged between 18 and 39."

In fact you must be

• a UK resident, or a member of the armed forces serving overseas, or their spouse/civil partner

You are a UK resident if you have been in the UK for 183 days in the current tax year.

Since the tax year ends on April 5, someone who moves to the UK and doesn't leave in early October will become entitled to a LISA before the new tax year on April 6.

You will also become UK resident if:

• 'you have a home in the UK' (which means a home you own, rent or staying with family) which you have been in for 30+ days in the current tax year AND
• you've had that specific home for 91+ days (whether in one tax year or spanning two) AND
• you've been in that specific home for 30+ consecutive days in the current tax year AND
• EITHER have no overseas home OR spend no more than 30+ days in the current tax year.

'No overseas home' is satisfied if you can't reside in your overseas home - e.g., if you own a property in India but move to the UK, renting out the property to another, then you no longer have an overseas home, and after 91 days will become a UK resident.

You are also a resident on the basis of working full-time for any consecutive 365+ days in the UK.