LISA (Lifetime ISA) and Help-To-Buy ISA

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Reading on the latest info about LISA's that are coming along in April, I noticed that once you had paid the £4000 into the account that tax year you can open up or pay into another ISA. I currently have a Help-To-buy ISA with Halifax and am looking at opening a LISA in April. I know that I am not able to pay in to another ISA this year unless I close my Help-To-Buy ISA account.

The question is once I have paid the £4000 in to my LISA in the next tax year, am I then able to carrying on making payments in to my Help-To-Buy ISA or will they be excluded from this?
Will it just be normal ISA's that can be paid into?

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  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    The amount you contribute into a HTB in the 2017/18 tax year is knocked off your LISA contribution allowance for that tax year so if you did £4k in LISA you couldn't do any in HTB. You could transfer the "old money" from the HTB into the LISA, thereby closing the HTB account. When you come to buy your house you can only use your HTB *or* your LISA, so it makes sense to combine them before you get to the end of next tax year.
  • keetster
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    I know that I won't get the special bonuses on both when buying a house, however the HTB I currently have is higher interest rate then any standard easy access ISA's, (and many fixed), which is the main reason that I was thinking about keeping it open for now. Plus I may just use the LISA for a "pension pot" for later on in life depending on how things pan out in the next few years.

    Just to make sure I understand though, does it mean that if I pay £2400 or more into the LISA then I wouldn't be able to make any payments in to my HTB, however still able to make payments into another standard ISA?
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    edited 24 January 2017 at 8:15PM
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    keetster wrote: »
    I know that I won't get the special bonuses on both when buying a house, however the HTB I currently have is higher interest rate then any standard easy access ISA's, (and many fixed), which is the main reason that I was thinking about keeping it open for now. Plus I may just use the LISA for a "pension pot" for later on in life depending on how things pan out in the next few years.
    Assuming the HTB is paying a higher rate than the LISA and any other account you can find, yes it makes sense to keep on with the HTB contributing £200pm into it until you get towards the end of next tax year, and only at the last possible moment transfer it into a LISA before the end of best tax year.

    But ultimately it makes no real sense NOT to combine the two, because if you keep them separate you are denying yourself the chance to use the maximum amount of money to get a bonus towards house purchase or any further major life events that future legislation might allow LISA funds to be spent on.

    If you keep the HTB separate and it has a couple of thousand in it that you don't use on a property purchase because you used LISA instead, it's a waste of that £500 bonus. And likewise if you have £4000 in the LISA and you use your HTB to buy the property, it's a waste of that £1000 bonus you could have had from the LISA to do something useful (like getting the property) and now can't access until age 60. Far better to combine them and get the whole £1500 max bonus.

    That assumes that at some point between now and age 60 you will want to buy a property or buy in to part of one. Most people do.
    Just to make sure I understand though, does it mean that if I pay £2400 or more into the LISA then I wouldn't be able to make any payments in to my HTB, however still able to make payments into another standard ISA?

    You can put £2400 into your HTB (to use its good interest rate before eventually transferring to LISA) and £1600 into the LISA and still be within your overall product limits (no more than £2400 in HTB in 2017/18 and a max of £4000 in LISA in 2017/18 reduced by the HTB contributions of that tax year).

    You can have a separate Cash ISA, S&S ISA, LISA and IF ISA containing 2017/18 contributions but no more than one of each of those four types, within the overall £20k limit. HTB is a type of cash ISA. So, if you don't put anything into the HTB in 2017/18 (or you do, but then you close it by transferring it into a LISA), you will not have a cash ISA containing any 2017/18 contributions so you could open a different cash ISA and contribute into that. Or a S&S or IF ISA, for that matter.

    However, given the rates on cash ISAs compared to non-ISA products (e.g. Nationwide regular saver account offering 5% on up to £500pm, and various high interest current accounts) it is doubtful that you need any cash ISA products (other than the HTB one prior to converting to LISA). As you've seen, the rates on cash ISAs are not great and it is better to get a higher gross rate and pay a small amount of tax (perhaps even zero depending on how much personal allowance/ personal savings allowance you have), rather than the lower rates available in cash ISAs.

    For someone without large cash balances and high tax bills, HTB or LISA is the only type of ISA worth saving cash in, because of the valuable gov't bonus.
  • keetster
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    Thanks for that, I think I understand it better now.

    The reason for keeping the HTB and open a LISA would be if the HTB interest rate was higher than the LISA at the time. When the rate became lower then I would transfer the HTB into the LISA. I've been saving in a Nationwide 5% regular saver that just matured and is ready to transfer in the next tax year.
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