Having multiple types of ISA

ratechaser

Morning all,

My 16 YO daughter currently has about 40k in her junior ISA. Having had 'the discussion' on future financial planning with her, current plan is:

1) Get a H2B ISA set up ASAP
2) When she turns 18, convert her JISA into a standard adult ISA
3) At the same time, set up a LISA for new money.

Believe that's ok - she can have all 3 types of ISA at that point because the 'regular' ISA would just be a transfer in so not conflict with the new LISA. And understand that for house purchases she could only get the bonus on one account, so either the LISA becomes a long term pension equivalent option or the H2B ISA would forgo its bonus entirely (not the end of the world as it would still be paying 2.5%, so an ok savings option in its own right)

Does that all make sense?

Thanks
RC

masonic

The HTB ISA and the adult ISA (if a cash ISA) are ISAs of the same type (cash ISA). A LISA is a different type of ISA (Lifetime ISA) and can be contributed to alongside a cash ISA. The other two types are S&S ISA and IF ISA.

She must not add new money to (1) and (2) in the same tax year. This may be a problem if, for example, she tops up the JISA in the same tax year she turns 18.

In terms of running the HTB ISA and LISA in parallel, in most cases it will make sense to use the LISA for a house purchase and the HTB ISA for interest without claiming the bonus.

ratechaser

masonic wrote: »

The HTB ISA and the adult ISA (if a cash ISA) are ISAs of the same type (cash ISA). A LISA is a different type of ISA (Lifetime ISA) and can be contributed to alongside a cash ISA. The other two types are S&S ISA and IF ISA.

She must not add new money to (1) and (2) in the same tax year. This may be a problem if, for example, she tops up the JISA in the same tax year she turns 18.

In terms of running the HTB ISA and LISA in parallel, in most cases it will make sense to use the LISA for a house purchase and the HTB ISA for interest without claiming the bonus.

Thanks, for simplicity the starting point is cash all round. Baby steps... I suspect an IF ISA might be a step too far for an 18 YO!

So the conflict between 1 and 2 can be managed because the Nationwide's H2B ISA allows additional contributions up to 20k, beyond the H2B element. Not that she's likely to have that much new money to put in - contributions from the bank of mum&dad will not go on forever!

Tend to agree on using the H2B as just a savings account - they have better rates than LISAs, whereas a LISA will allow a bonus to build up faster and has a higher FTB purchase threshold.

Of course, she could hold it till retirement to get the bonus there but the chances of it not getting screwed over in that 33 year period by successive governments tax tinkering.... well... :rotfl::rotfl::rotfl:

masonic

Yes, if she wants to use the rest of her allowance, then a split-ISA like that offered by Nationwide would be a good solution.

However, rates tend to be better outside of ISAs so for savings that will ultimately go towards the house purchase (where long-term tax free status is unimportant) she's best going with the best available net rate, wherever that can be found, taking into account the Personal Savings Allowance.

There's also nothing to stop her using a LISA for the initial house purchase and then transferring it to a S&S provider afterwards to save into for retirement.

ratechaser

Just coming back to this as daughter 1 is getting close to 18... one final question:

She's got the NW H2B ISA and intends to continue paying £200/month in as it's paying 1% right now. Am I right in thinking that there is no conflict with converting her Coventry JISA into a new adult cash ISA - as that wouldn't be a new subscription as such, i.e. as long as there were no 'new moneys' in during the same tax year?

She's then intending to use the new adult Cash ISA to drip feed a LISA for a few years before possibly buying a property. Given the timescales, not much point looking at S&S options.

thanks
RC

Alexland

Yes provided she doesn't contribute new money into the new adult Cash ISA (formerly Junior ISA) in the same tax year as the HTB ISA that should be fine. Cash ISA rates are unattractive so she might prefer to keep her savings in a non-ISA account. Obviously if she uses a penalty free LISA withdrawal to buy the property she will not be able to claim the HTB ISA bonus and will no longer be eligible to hold the account.

ratechaser

Alexland said:

Yes provided she doesn't contribute new money into the new adult Cash ISA (formerly Junior ISA) in the same tax year as the HTB ISA that should be fine. Cash ISA rates are unattractive so she might prefer to keep her savings in a non-ISA account. Obviously if she uses a penalty free LISA withdrawal to buy the property she will not be able to claim the HTB ISA bonus and will no longer be eligible to hold the account.

Thanks, and yes noted re the H2B account - that's already been written off in terms of using it for a house purchase, it's only still going because the 1% it pays is better than any other available instant access account she'll be able to get at age 18. Although she will shortly have another option there - the Monmouthshire junior saver paying 1.25% that crucially can be maintained until age 21.

Likewise noted in terms of whether to keep the JISA proceeds within an ISA wrapper or not - could be more funds for her Monmouthshire account!