Do I transfer Help To Buy ISA to a LISA?

arapps

Hi all!
I've been doing research on LISAs lately and are unsure whether to transfer my Help to Buy ISA. Basically I save £500 every month, £200 into my HtB and £300 into my normal savings account (with a terrible 0.1% interest). I have around £5000 in my HtB already, which I opened a few years ago with Halifax so I am still receiving the 3.5% interest rate.

My £500 saving a month is unlikely to change over the next year. I have them on a standing order so they happen automatically. Because I'm saving a lot a month I would be able to put in the maximum £4000/yr into a LISA instead of the £2400/yr in a HtB. My question is, is it worth it? The interest rates are pretty measly at the moment (around 0.5% variable) compared to my current 3.5%. Do the calculations work out better? What's the best way to work it out?

We're planning to buy in just over a year (so I need to make a decision soon!).

Thanks in advance. Hopefully this will all make sense.

eskbanker

The way I look at it is that the government's 25% bonus outweighs any interest you earn by a considerable margin and therefore you optimise your return by getting as much as possible into 25%-earning territory, which realistically means maxing a LISA.

So, open a LISA asap, transfer your HTB into it at the end of the tax year and ensure that you top up the LISA to the full £4K (excluding your HTB contributions prior to this tax year, which should also be circa £4K) before year-end too. By the end of April 2018 that £8K will be boosted to £10K with the 25% bonus.

Then keep paying your monthly £500 into the LISA - from April 2018 the bonus is applied monthly so each £500 will promptly become £625, so by the time you get to autumn 2018 you should have contributed something like £11K which will magically have become £13,750!

More details at http://www.moneysavingexpert.com/savings/lifetime-ISAs#property6

arapps

Thanks for the reply. I'm going to open a LISA today but hold off on transferring the HtB over just yet so I can maximise on interest. One thing I'm confused about though is:

Let's say I have £6000 in my HtB in March 2018. The LISA limit is £4000/yr. Does that mean I can only transfer £4000 from my HtB before April 5th? Then wait for the next financial year to transfer the last £2000. Then from then I only have £2000 left to deposit for that year?

I read somewhere that that's not the case. You can transfer the full £6000 and then put in a further £4000 within that year, as the transfer from a HtB doesn't count towards the £4000/yr LISA limit.

It's really confusing on what I can/can't do!

From the link you posted in your reply, it says I can have both a HtB ISA and a LISA open at once. If I use the LISA to save towards a property and use it for the 25% bonus, can I then just pay in other money into the HtB ISA and just use it for the interest? So basically a well-paid savings account? Or am I not allowed to deposit into both at the same time?

Thanks

eskbanker

arapps wrote: »

Let's say I have £6000 in my HtB in March 2018. The LISA limit is £4000/yr. Does that mean I can only transfer £4000 from my HtB before April 5th? Then wait for the next financial year to transfer the last £2000. Then from then I only have £2000 left to deposit for that year?

I read somewhere that that's not the case. You can transfer the full £6000 and then put in a further £4000 within that year, as the transfer from a HtB doesn't count towards the £4000/yr LISA limit.

The rule is that HTB funds from before the current 2017/18 tax year can be transferred into a LISA without counting towards the £4K annual LISA allowance, but anything contributed to an HTB in 2017/18 and then transferred into the LISA does count towards the £4K allowance.

arapps wrote: »

From the link you posted in your reply, it says I can have both a HtB ISA and a LISA open at once. If I use the LISA to save towards a property and use it for the 25% bonus, can I then just pay in other money into the HtB ISA and just use it for the interest? So basically a well-paid savings account? Or am I not allowed to deposit into both at the same time?

You're correct, you can pay into both but only get the 25% on one, so as you say you can continue to use the HTB for the interest (which only makes sense if you've already been able to fully fund the LISA for the 25%).

So, if you have enough funds to go round, you can transfer your pre-17/18 HTB funds to a LISA, add the full £4K into the LISA by the end of 17/18 and then keep piling in as much as possible into the LISA in 18/19, while continuing to use the HTB for the interest on any surplus money over and above what you're paying into the LISA in both 17/18 and 18/19.

arapps

Ideal!

The rule is that HTB funds from before the current 2017/18 tax year can be transferred into a LISA without counting towards the £4K annual LISA allowance, but anything contributed to an HTB in 2017/18 and then transferred into the LISA does count towards the £4K allowance.

Does this include interest before April 2017? My interest is paid in January, when I opened the HtB isa. Or can I only transfer my contributions?

This is probably a silly question but I'm about to go through the application process. How do they know the money I deposit which is before this tax year is what I say it is? How do they know not to count that towards my 4K limit for this year?

eskbanker

arapps wrote: »

Does this include interest before April 2017? My interest is paid in January, when I opened the HtB isa. Or can I only transfer my contributions?

The transferable amount without affecting the LISA allowance includes not only interest already in the HTB account as at 5 April 2017 but also interest accrued but not paid at that point, i.e. another three months worth of your 3.5%. See https://www.whatdotheyknow.com/request/398974/response/966594/attach/2/TO%20TO2017%2008177.pdf

arapps wrote: »

This is probably a silly question but I'm about to go through the application process. How do they know the money I deposit which is before this tax year is what I say it is? How do they know not to count that towards my 4K limit for this year?

The HTB ISA manager is obliged under the regulations to differentiate between pre-17/18 funds and the rest when transferring (not depositing, this needs to be done via the ISA transfer process), as per clause 9B.17 of the HMRC rules:

It will be necessary for ISA managers who are transferring Help to Buy: ISA funds to separate the transferred amount between:

• Previous year account (i.e. pre 6 April 2017) – which will not count towards the Lifetime ISA payment limit, and
• Current year account (i.e. 2017/18 subscriptions and proceeds, which will count towards the Lifetime ISA limit.