LISA and government bonus

IntotheAbyss

Hi,

I'm currently in the process of saving for a deposit. Will be starting to look at houses with my partner this time next year.

I have a HTB with £1400 saved so far. Saving the maximum £200pm. I'd like to save a bit more toward the deposit whilst still getting a 25% bonus from the government. I've been thinking about opening a Lifetime ISA now and transferring my HTB into it. I understand LISAs have to be open for 12 months so this will be enough time before I am ready to use it.

Questions:
1. According to the LISA page on MSE the bonus is paid every year until you reach 50 but it also says it's paid every month and it can take 4-9 weeks for it show in the LISA. Which is it?
Also, when the time comes to close the LISA, any bonus that hasn't been paid in yet, will be paid upon closing, provided I use it for a deposit?

2. You can also save a maximum of £4000 every year, does this mean a year from opening the LISA or every tax year?

3. Could I pay in £300pm by standing order or is there a maximum per month like the HTB? I read you can pay in lump sum so assume that just as long as I don't go over the £4000 max. then it doesn't matter how it's paid in?

Thanks

bowlhead99

IntotheAbyss wrote: »

Questions:
1. According to the LISA page on MSE the bonus is paid every year until you reach 50 but it also says it's paid every month and it can take 4-9 weeks for it show in the LISA. Which is it?

It will indeed be paid 'every year until you reach 50' based on your contributions in that year. But it doesn't get paid all at once on one day each year. It's claimed monthly by your ISA provider based on how much you put in during the month (e.g. if you pay it in all at once, it would really just be claimed once a year, but many people will pay in several times during a year and get the bonus added in several monthly chunks)

Also, when the time comes to close the LISA, any bonus that hasn't been paid in yet, will be paid upon closing, provided I use it for a deposit?

If you use the money for buying a qualifying property then yes you can take it out without penalty.

Many people will choose not to close it when they buy their property, and keep using it, contributing to it from time to time and eventually drawing out the money penalty-free in retirement. If they are using it for retirement that would probably transfer it from a cash LISA (suitable for saving over the short term for a property deposit) to an investment LISA (suitable for longer-term growth).

2. You can also save a maximum of £4000 every year, does this mean a year from opening the LISA or every tax year?

Per tax year. If you open it now, you can put the whole £4000 in before 5April and then another £4000 in the tax year that starts on Monday 6 April 2020, and another £4000 in the tax year starting 6April 2021.

So between now and the week after Easter 2021, you could have £12000 in there, getting £3k of bonus, even though it's only about 15 months away.

3. Could I pay in £300pm by standing order or is there a maximum per month like the HTB? I read you can pay in lump sum so assume that just as long as I don't go over the £4000 max. then it doesn't matter how it's paid in?

Pay in what you like when you like, small or large amounts as long as you don't go over £4000 of contributions from outside a LISA into a LISA in any one tax year (and you don't go over £20k of total ISA subscriptions in any one tax year).

IntotheAbyss

Thank you bowlhead! You've cleared up everything perfectly.

I shall be opening a LISA today and start saving more per month.
Thanks so much for your help.

sully1311

Just a suggestion that it may be better putting your money elsewhere until the end of each tax year to maximise interest as Lifetime ISA interest isn't the best.

For house purchases in the next 12-24 months it would probably be best to use a Cash LISA.

grumiofoundation

sully1311 wrote: »

Just a suggestion that it may be better putting your money elsewhere until the end of each tax year to maximise interest as Lifetime ISA interest isn't the best.

For house purchases in the next 12-24 months it would probably be best to use a Cash LISA.

Although I agree generally probably sensible to pay in near the end of the tax year the interest in Moneybox (1.4%) is actually higher than currently available easy access accounts, and when you factor you also get this interest on the bonus as well actually a good interest rate!

IntotheAbyss

Thanks for the replies both, I opened a Moneybox LISA yesterday.
I have set it up to save a small amount for now (£2 per week) and will be transferring in the money from the HTB before 5th April.

When I was going through the setup I was given the option of Investment (long term) or Cash (short term - I'm almost 100% certain of this but the wording may have been different or I may be confused if there are several different types of cash LISAs).
I chose Cash as it's not going to be a long term thing.

Is this not the same thing you're talking about Sully?

ETA: the interest rate on my instant saver with Halifax is .20% so the LISA is the better rate.
Thanks