Lifetime ISA - Cash and S&S

rjmachin

Hi,
I am 39 years old and I currently has a Cash Lifetime ISA with Moneybox.  I plan on depositing the full £4000 before the end of this tax year to get the 25% bonus.
I have read that ISA's (normal ones) allow £20k to be split across both Cash and S&S ISA in the same tax year, so I was wondering if could do the same with a LISA?  Open a S&S LISA before my 40th birthday and split between the 2?
The LISA is for retirement, not a house (I have a house with a mortgage).
I don't have a clue about investments, so unless I was advised what to invest in, I would be scared of doing the wrong thing, so I was thinking of moneybox as it is managed and would have the S&S LISA and Cash LISA in the same place.
If I can open both, am I only allowed £4000 split between the two?

Alexland

You can only contribute new money to one LISA account each tax year.

Cash LISAs are intended for people buying their first property in the next 5 years.

If you are using your LISA for age 60+ then saving in cash is not suitable because the annual interest rate is around 1% below inflation so over 20+ years you have wasted your 25% bonus on the reduced spending power of your money.

As such it would be very much worth your while to learn more about S&S investing for which, over the long term, a suitable asset allocation stands a good chance of generating a return above inflation. You can either go with Nutmeg or Moneybox who will make it very simple or you can use a DIY platform such as HL or AJ Bell where it's more complicated but you get more choice and potentially lower costs.

Whatever you do the S&S investments will have some volatility where the money goes up and down which takes some getting used to like being in a boat on the water. People usually have a portfolio of both shares and bonds to dampen this volatility. There are low cost all-in-one multi asset funds that do this for various risk profiles.

Also before contributing to a LISA for age 60+ ensure you are making good use of any pension options you may have particularly if you can get more employer contributions or higher rate tax relief if applicable.

rjmachin

Thank you...  I have not contributed anything this tax year yet, and only contributed £51 in January to get the LISA open before my 40th birthday next February 2021.
Should I use the governments change and withdraw the £51 now while it's still an option or just leave it there?
So, for S&S ISA's, I would prefer a "do-it for-me" provider as they are described on MSE.  Presumably I would want to contribute fully to a S&S LISA first to get the 25% uplift?
As mentioned, I have a Moneybox Cash LISA, but I cannot see any option in the app to convert this to a S&S LISA.  According to MSE, they charge £1 a month + 0.45% a year + up to 0.3%, so up to £42 per year for S&S LISA?

For Nutmeg, the website shows that the fully managed has fees of 0.75%, 0.19% fund cost and 0.06% market spread, so on £4000 it would be £40 per year in costs/charges.  Though going through MSE the platform (0.75% ?) fees are waived for the first year.

rjmachin

Regarding my pension options, I have 2 pensions:
1. Auto opt in pension, employer contributing 3% (~£67), me 5% (~£112)
2. Old workplace pension, still contributing via DD with 25% tax relief (£187.50 inc tax relief), employer still contributing fixed £30 per month

I work for a small family run business, so I don't think sacrifice would be possible.
I have been planning / hoping recently on retiring early, by paying off my mortgage early (£77k atm) and saving like mad as well as contributing to the above pensions etc.  Guiide was enlightening which showed it was possible, by using savings in the early years, followed by draw down of pensions before SPA and then the state pension.  The Cash LISA was my idea to boost the savings aspect, by getting the 25% bonus up until 50 and then being able to take it all tax free at 60

Alexland

For your small LISA contribution from last tax year neither Moneybox nor Nutmeg are currently supporting inbound transfers so I would just withdraw it without bonus and close the account to keep things tidy. Provided you are still under 40 when you open and contribute to your new S&S LISA that should be fine.

In terms of charges the Nutmeg fixed allocation portfolio at 0.45% + fund manager and market costs is cheaper than Moneybox and the more expensive Nutmeg options. If investing for 20 years the you probably want to select risk level 4 out of 5 "growth" which has around 80% shares and 20% bonds however in a market crash that might temporarily drop around 35%+. If you feel this is too much volatility then option 3 out of 5 "balanced" would also be fine although probably generate a lower return and in a market crash that might temporarily drop around 25%+. As you get closer to withdrawal you should reduce the risk to get more certainty on the outcome.

However it's still worth thinking about the DIY options with HL or AJ Bell YouInvest as they are more financially stable companies and it is possible to just buy into a single mutli-asset fund such as Vanguard LifeStrategy 80 (similar to Nutmeg 4 out of 5 fixed allocation portfolio) or VLS60 (similar to Nutmeg 3 out of 5 fixed allocation portfolio). AJ Bell YouInvest have a platform fee of just 0.25% although they charge £1.50 each time you buy more fund units so in the early years it works out roughly the same but as the account balance grows (particularly if you are adding the full £4k per tax year) the platform fee saving becomes much bigger than the cost of the trades.

In terms of your pensions if you are not getting salary sacrifice or earning enough for higher rate tax relief then just put enough in to get the maximum employer contributions and then put anything extra into the LISA. The advantage of the LISA is that there is no tax on withdrawal. After age 50 when you can no longer contribute to a LISA then switch those additional contributions back into your pension for the remaining period until retirement.

rjmachin

Thanks Alexland, your input is very much appreciated.
AJ Bell YouInvest sounds like it may be suitable.  I see they do the LISA as well, is this the one you were thinking for me? 
I would go for the Vanguard LifeStrategy 80 for the hope of bigger returns.  Is it easy to just select the Vanguard LifeStrategy 80 when creating the account and then just be able to add the £4000 each year to the LISA, or would I need to choose the fund each time I add money?   
Am I correct that it would work out cheaper to do a single lump sum rather than regular smaller payments?

Albermarle

via DD with 25% tax relief (£187.50 inc tax relief)

As there is no 25% tax rate , there is no 25% tax relief, only 20% and 40%.

What can be confusing is that if you add £100 then £25 tax relief is added. But £25/£125 is 20% not 25% .

rjmachin

Ah, I see.  Yeah, I pay £150 out of my account and £187.50 gets added to my pension

Alexland

rjmachin said:

AJ Bell YouInvest sounds like it may be suitable.  I see they do the LISA as well, is this the one you were thinking for me? 
I would go for the Vanguard LifeStrategy 80 for the hope of bigger returns.  Is it easy to just select the Vanguard LifeStrategy 80 when creating the account and then just be able to add the £4000 each year to the LISA, or would I need to choose the fund each time I add money?   
Am I correct that it would work out cheaper to do a single lump sum rather than regular smaller payments?

Yes if you can contribute the full £4k per tax year the AJ Bell fee structure will be better in the long run as the savings from the low 0.25% percentage charge will pay for the £1.50 fund trade costs. If you are able to do it as one lump sum that would be £1.50 to invest the contribution and a further £1.50 a month or two later to invest the bonus. However if you are holding back on contributing until you have the full allowance then you might be missing investment returns which might be more than the £1.50 trade costs. AJ Bell could also transfer in your small Cash LISA from last tax year. You wouldn't invest the full contribution as you would need to leave enough cash in the account to pay the quarterly percentage fees until you can next contribute. First time you do it you would pick the fund (accumulation version) and from then on you just tell them to buy more investments units for what you can already see in your account.