Both help to buy and lifetime ISA

Andy357H

I have about 6.5k in a help to buy ISA at the moment.

My current understanding to maximise these savings is this:

1. Transfer all funds in help to buy to lifetime ISA before end of this tax year
2. Bonus is then applied to full 6.5k
3. In new financial year, begin putting about 330 per month into lifetime ISA, so about 4k per financial year
4. I then receive 25% of my annual input at the end of each financial year, including the full 6.5k from my help to buy (all bonus money that I can only use on a deposit or retirement, not to be withdrawn)

Is this correct or is there a better way that I'm missing?

bowlhead99

Andy357H wrote: »

I have about 6.5k in a help to buy ISA at the moment.

My current understanding to maximise these savings is this:

1. Transfer all funds in help to buy to lifetime ISA before end of this tax year
2. Bonus is then applied to full 6.5k
3. In new financial year, begin putting about 330 per month into lifetime ISA, so about 4k per financial year

You probably don't need to wait until the new financial year to start putting other money into your LISA. The total amount you can put into a LISA in 2017/18 is

- the amount you already had in your HTB ISA from previous tax years at 5/4/2017 in cash plus any accrued interest owed to you at that point; PLUS
- £4000 allowance for the 2017/18 financial year which can come via your HTB or just direct from your bank account.

So if your HTB already contained £4400 at the end of last tax year and you have put another £2000 into it and earned say £100 of more interest since, you might have (say) £6500 in it now. When you transfer that £6500 into the LISA, the previous years' £4400 isn't counted against your current year £4k LISA limit, only the rest of it (£2100) is counted, so you have £1900 limit remaining to use up by contributing directly to the LISA before April 6 2018.

The more money you can stuff into this allowance the bigger the total LISA contributions you'll be legally allowed to put into the LISA before you buy your house (or reach age 50), and therefore the bigger the bonus you will get.

Going forward in 2018/19 and 2019/20 tax years etc you can pay £333 a month or £4k all on one day if you like, they don't care as there is no monthly limit only an annual one.

4. I then receive 25% of my annual input at the end of each financial year, including the full 6.5k from my help to buy

As 2017/18 is the first year of LISA operation and HTB transfers are allowed, they are waiting to the end of the year before the ISA managers claim the bonus on your behalf (for the HTB transfer and any other contributions you make direct). But going forward through 2018/19 and beyond, the bonuses are received monthly rather than annually.

(all bonus money that I can only use on a deposit or retirement, not to be withdrawn)

Once you have received any bonus funds in the LISA, if you try to do a withdrawal wiithout using it for property or retirement they will deduct a penalty of 25% of any amount you try to take out.

So you can still get money out, but you will lose a penalty which is greater than the amount of the bonus you received (e.g. £100 in will get a 25% bonus to turn it into £125, but if you try to take the £125 out you pay a penalty of 25% of £125 which is £31 even though you only got £25 bonus.

Is this correct or is there a better way that I'm missing?

Generally:
- make sure you get your HTB ISA transferred in and actually received by the receiving ISA manager by the end of this tax year (not just apply for it on the last day)

- put any other spare cash up to the £4k limit directly into the LISA to use up the 2017/18 limit. You won't use up the full 2017/18 LISA limit just by paying in £200pm to a HTB and transferring it, because that (plus interest earned in the HTB) will still be lower than the £4k limit.

-going forward try to max out the £4k allowed to be contributed to the LISA each year, to maximise the bonus.

Alexland

Remember the Skipton cutoff for HTB to LISA transfers this tax year is the end of Feb. If this is your plan then act now.

AirlieBird

Given the poor interest rate on the Skipton LISA, to maximise interest it would be better to save the monthly contributions or lump sum in a high interest easy access or notice account elsewhere and put it in to the LISA near the end of the tax year.

Alexland

AirlieBird wrote: »

Given the poor interest rate on the Skipton LISA, to maximise interest it would be better to save the monthly contributions or lump sum in a high interest easy access or notice account elsewhere and put it in to the LISA near the end of the tax year.

Yes for straightforward LISA contributions from cash, where there have been previous deposits, I agree but for ISA transfers these can be painfully slow or opening new accounts there can be unexpected delays (ID verification, etc) so I would suggest starting now.