Questions about LISA

Jk920

Hi, I have a few questions about opening a LISA for the first time as it was suggested to me for a house deposit fund and sounds pretty good.



I have had a two-year fixed term ISA opened in 2018/2019 but have also been able to invest it into this tax year, I have invested around £12k I believe and have only now heard about LISAs where I can save £4k, open it up, maximise it and I wanted to know if I could open up another LISA after April, transfer my exisiting LISA (once I've opened it) and top it up another further £4k so in total I will have £10k, is this correct? I understand my fixed-term ISA limit will therefore be £16k if I do this.



My questions are:
1. As I have a fixed-term ISA at the moment and am investing into it, am I able to still open up a LISA? I've read I am but I want to make sure.


2. Can I do as I said above - open one before April in this tax year and then open another one after April in the 2020/2021 tax year?



3. Are there any cons to opening up a LISA? Does the government own or do you owe anything/have to return anything once you've bought a house? I've vaguely heard of this with help to buy ISA and want to make sure this is not the case. I've not read anything negative about it but it would be useful to hear people's experiences with it.


Thanks!

eskbanker

Jk920 wrote: »

1. As I have a fixed-term ISA at the moment and am investing into it, am I able to still open up a LISA? I've read I am but I want to make sure.

Yes, as per https://www.gov.uk/individual-savings-accounts:

There are 4 types of ISA:

• cash ISAs
• stocks and shares ISAs
• innovative finance ISAs
• Lifetime ISAs

You can put money into one of each kind of ISA each tax year.

Jk920 wrote: »

2. Can I do as I said above - open one before April in this tax year and then open another one after April in the 2020/2021 tax year?

With LISAs you don't keep opening new ones, you just open one and keep paying into it from one tax year to the next.

Jk920 wrote: »

3. Are there any cons to opening up a LISA? Does the government own or do you owe anything/have to return anything once you've bought a house? I've vaguely heard of this with help to buy ISA and want to make sure this is not the case.

The most significant downside to LISA is the 25% penalty for withdrawals if you're not using it for a first-time property purchase more than 12 months after opening (before age 60). The initial age cap of 40 is a negative for some, and the interest rates on cash LISAs have been poor, although the Moneybox product is now competitive. Not sure what you've read about HTB but it could perhaps be something to do with the (separate) equity loan scheme rather than the ISA?

Jk920

eskbanker wrote: »

Yes, as per

With LISAs you don't keep opening new ones, you just open one and keep paying into it from one tax year to the next.

The most significant downside to LISA is the 25% penalty for withdrawals if you're not using it for a first-time property purchase more than 12 months after opening (before age 60). The initial age cap of 40 is a negative for some, and the interest rates on cash LISAs have been poor, although the Moneybox product is now competitive. Not sure what you've read about HTB but it could perhaps be something to do with the (separate) equity loan scheme rather than the ISA?

Thanks! Oh I assumed once you opened up a LISA you have to open a new one in the new tax year, so I'm assuming once I open it up before April and maximise it, get a bonus then after April, I can maximise it again and get the bonus for 2020/2021 tax year?


Ah yes, I'm familiar with the penalties and I will be using it primarily for a house deposit on top of what I've saved already.

eskbanker

Jk920 wrote: »

I assumed once you opened up a LISA you have to open a new one in the new tax year, so I'm assuming once I open it up before April and maximise it, get a bonus then after April, I can maximise it again and get the bonus for 2020/2021 tax year?

Correct, yes, you can pay up to £4K into the same LISA every tax year, with all contributions being supplemented by the 25% government bonus.

badger09

@ Jk920

Given that Cash LISA rates are not earth shattering, it makes sense to maximise interest on your annual £4k elsewhere before paying it into your LISA.

What rate are you getting on your Cash ISA?

Do you earn more than £1k interest annually outside your ISA? (assuming you are a Basic rate taxpayer)

I suggest you open a LISA with the minimum possible asap, to start the minimum 12 month period clock running. Then save in the highest interest rate account you can - take a look at Nationwide FlexDirect current account, then Regular Savers, and notice accounts.

Alexland

Jk920 wrote: »

3. Are there any cons to opening up a LISA?

The other danger to consider when saving in a LISA is if the property you find is above £450k you will not be able to make a penalty free withdrawal to support the purchase.

kherring92

Hi.
I started saving using the LISA with the view of buying my first home for under £450k. My partner and I have since decided that we would like to buy somewhere for more than £450k. I assume I will lose 25% if I decide to do so, despite the fact it will be both of our first home? I'm hoping that we might just lose the bonus, and not more than we put in....
Seems unfair to penalise people on the cusp of the £450k limit, especially given it's now two people buying, not one. 
Thanks
Kris

kuratowski

If you withdraw the full balance from a LISA outside the permitted reasons, you will lose some of the money you put in.

You do have an alternative, which is to keep the LISA until you are aged 60, if you decided to do this then it would be sensible to transfer the funds to a S&S LISA, which will probably have better long term returns.