S&S ISA/LISA advice

redlfc

Hi everyone, just after some advice if possible

Just opened Newcastle Cash ISA (not deposited anything yet) and H2B ISA (deposited 1200 first month) I was initially of the understanding that you could only use the bonus once on the LISA, either for house or retirement - hence i planned on using max 3k bonus on H2B ISA to purchase house then use LISA for retirement. However i now understand you can use LISA bonus to purchase house and then still continue receiving bonus with further 4k deposits for retirement.

Therefore my plan is to use H2B as a savings tax free account, max deposits on cash LISA until house purchase and then switch to S&S LISA for retirement bridging

However I would like to start investing in S&S now to make the most of compound interest etc whilst still relatively young (25 years old currently). My plan was to invest solely in Vanguard Lifestyle 80 - but it would have to be through standard ISA as i cannot invest in both a cash + S&S LISA in same tax year

1) Would it be best for me to open Vanguard ISA now and invest what I can on top of 4k cash LISA contribution ?

2) If i do this , would I be able to transfer my Vanguard S&S ISA to my new S&S LISA once opened after house purchase? Or would there be no need i.e should I just keep the Vanguard ISA as it is and further invest in it via the LISA after buying house?

3) I am confused as to how the ISAs work in terms of keeping it open - I thought once the tax year is over you can no longer contribute to the ISA - so how would I keep investing in the same Vanguard ISA year and year?

thanks for your help!

Alexland

I struggle to keep up with the new threads you keep spawning.

Firstly you are normally only allowed to contribute to a single Cash ISA in any given tax year. This would usually mean you need to choose between a Cash ISA or a HTB ISA. The exception is when a provider offers a Split Cash ISA where they report the total of both accounts to HMRC as a single Cash ISA. I cannot see if Newcastle offer this option on their website so assume you have checked with them? They do have a 'CustomISA' product but that doesn't seem to include their HTB ISA in the drop down list of allowable combinations.

There are 4 types of adult ISAs. You are allowed to contribute into one Cash ISA (inc HTB ISA), one S&S ISA, one LISA (cash or s&s) and one IF ISA in any tax year subject to the limits.

https://www.gov.uk/individual-savings-accounts

In terms of your S&S questions you are trying to benefit from compound returns (not interest) and invest in the Vanguard LifeStrategy (not LifeStyle) fund.

1) Yes if you want to make long term S&S investments then generally the earlier you start the better however you can never tell what the market is going to do next with certainty. Vanguard S&S ISAs have low percentage fees and limited choice but for bigger accounts or lump sum contributions consider iWeb etc. However if you are looking to buy a property it is often good to keep money in cash as you probably don't know how much it is going to cost yet.

2) I guess you could transfer your S&S ISA to a LISA with certain providers but it would be unusual. It would still be limited by your £4k per tax year LISA allowance but would not use any more of your £20k per tax year ISA allowance.

3) You could continue to contribute into your S&S ISA each month into a new tax year and would essentially be resubscribing to the ISA when you would get a new allowance for the new year.

Alex

masonic

When do you plan to buy a home? How much will you need to have saved (in cash) by that point? There may be scope for investing in a S&S ISA, but you should make sure you don't have to sell S&S investments in the short term to fund the house purchase (in case your first few years coincide with a bear market).

As above, transferring from S&S ISA -> S&S LISA makes little sense. You'll be able to transfer any excess money in your cash LISA and just make use of your annual allowance after that.

redlfc

masonic wrote: »

When do you plan to buy a home? How much will you need to have saved (in cash) by that point? There may be scope for investing in a S&S ISA, but you should make sure you don't have to sell S&S investments in the short term to fund the house purchase (in case your first few years coincide with a bear market).

As above, transferring from S&S ISA -> S&S LISA makes little sense. You'll be able to transfer any excess money in your cash LISA and just make use of your annual allowance after that.

Essentially I do know know would be the answer - currently living with parents with no immeiate plans to move out but have a long term gf so would probably be looking to move out within the next 5 years

I am worried about investing in a cash LISA - mainly incase I do not end up being able to use it for purchasing a house (i.e if above value/get another home in my name through inheritance etc) meaning ive essentially wasted that money as it wont keep up compared to inflation

a S&S LISA would be better (if not for a house in next 5 years as then cash would be better) but then ive read comments saying a SIPP would be better due to tax relief especially as higher earner and could access before 60 - but then it may also put me above LTA which LISA wouldnt - its all so complicated!

redlfc

Thanks Alex!!

What im trying to decide is the best investment option to bridge gap from retirement around 55-60 until NHS pension kicks in when i turn 67 - Im currently unsure as to whether this would be best done via a SIPP which has the benefits of tax relief, especially as future higher earner and being able to access money before 60, but the downside of adding to LTA which LISA will not

2) the reason i thought of that was to make the most of the LISA bonus benefits which I would not get with a Vanguard ISA

3) Thanks sorry i dont know why i didnt realise that - makes sense

masonic

redlfc wrote: »

Essentially I do know know would be the answer - currently living with parents with no immeiate plans to move out but have a long term gf so would probably be looking to move out within the next 5 years

I am worried about investing in a cash LISA - mainly incase I do not end up being able to use it for purchasing a house (i.e if above value/get another home in my name through inheritance etc) meaning ive essentially wasted that money as it wont keep up compared to inflation

Over 5 years it will definitely keep up with inflation unless inflation exceeds about 9%, because it will gain the 25% bonus. If you don't need it to buy a house in that short timeframe you could transfer the whole sum to a S&S LISA and use it for retirement. The low growth over that period will be inconsequential if you manage to acquire a house without having to use your own hard earned cash. If you have your eye on owning a property worth more than £450k as your first home, then I agree a LISA is not worth using.

a S&S LISA would be better (if not for a house in next 5 years as then cash would be better) but then ive read comments saying a SIPP would be better due to tax relief especially as higher earner and could access before 60 - but then it may also put me above LTA which LISA wouldnt - its all so complicated!

There is no guarantee you could access a SIPP before 60 when you get there. In all likelihood the Government will maintain the link between the age you can access pensions and the state retirement age (which is rising to 70+), so expect not to be able to access a SIPP until 60.

A LISA is best for the slice of retirement income above your personal allowance, presuming you are paying in money taxed at the basic rate (or less).

A S&S LISA would be unsuitable for use towards a house purchase in the short term because of the likelihood of a sustaining a loss over a short investment period - unless you invest in very low risk investments, which are unlikely to beat cash.

redlfc

masonic wrote: »

Over 5 years it will definitely keep up with inflation unless inflation exceeds about 9%, because it will gain the 25% bonus. If you don't need it to buy a house in that short timeframe you could transfer the whole sum to a S&S LISA and use it for retirement. The low growth over that period will be inconsequential if you manage to acquire a house without having to use your own hard earned cash. If you have your eye on owning a property worth more than £450k as your first home, then I agree a LISA is not worth using.


There is no guarantee you could access a SIPP before 60 when you get there. In all likelihood the Government will maintain the link between the age you can access pensions and the state retirement age (which is rising to 70+), so expect not to be able to access a SIPP until 60.

A LISA is best for the slice of retirement income above your personal allowance, presuming you are paying in money taxed at the basic rate (or less).

A S&S LISA would be unsuitable for use towards a house purchase in the short term because of the likelihood of a sustaining a loss over a short investment period - unless you invest in very low risk investments, which are unlikely to beat cash.

thansk - very helpful!