LifeTime ISA or not?

hamptons

Assuming a long term goal and not withdrawing any money before age 50 is the Lifetime ISA the best way to maximize return on capital invested (assuming holding the same stocks and shares investments)? If the government gives £1,000 on every £4,000 invested that surely makes it better than a standard ISA (again not withdrawing any money before age 50).

Also what would the the return on own capital invested over the period? The £1,000 government contribution on each £4,000 gives an instant 20% gain p.a. head start over an ISA. Based on contributions from age 18 to 50, £4,000 each year + £1,000 govt, and a 5% return, I get an end value of about £420,000 after 33 years, of which own cash invested is 33 years x £4,000 = £132,000. The formula ((End Value/Start Value)^(1/Periods) -1) gives an annualized rate of return of 3.6%. Not sure how this can be right if each year's £4,000 gets an instant 25% return even without the 5% investment return estimated?

Alexland

If you open before 40 you can contribute until 50 but you cannot withdraw without penalty (unless for a qualifying first time buyer property purchase) until 60.

Our HL LISAs are invested in Blackrock Consensus 100 and I am expecting an average annual investment return of 2.5% above inflation and fees. This is aligned to 10 year growth forecasts from current valuations and assuming a reduction in risk towards the end.

So for someone 30 making full contributions until age 50 that would be around £170k at 60 in today's spending power. Or if starting from 20 that would be around £290k in today's spending power or maybe a bit more with a good decade in the middle.

In terms of "the best way" it depends on your circumstances for example a higher rate taxpayer would likely do better making additional pension contributions.

Alex

mcrosie123

Hi,

I already have some money in a LISA which I envisaged using to buy my first property. I understand there are limitations surrounding buying it to let that are restricted, however my partner is a doctor and may be required to change location in a couple of years. I was wondering whether it would be allowed to use it to buy a property (with the full intention of living in it for at least around a year and a half) but then if required, rent it out in the case we have to move?

I believe the government take a 'common sense approach' to this kind of issue but any insight would be much appreciated!

Thanks.

glaister

You might have seen this already (since you refer to the government's 'common sense approach') but, if not, this is quite an informative page from the main site: :money:

https://blog.moneysavingexpert.com/2016/04/can-you-rent-out-a-home-bought-with-a-help-to-buy-isalifetime-isa/?_ga=2.54992683.1470394080.1554107887-856081550.1537972451