Options for CTF maturing in a few months

JF2019

Hi,

I am looking for advice on behalf of my daughter whose CTF is due to mature in November 2021 with Foresters Life.

The current value is almost £18,000 which seems good based on the total amounts we have paid in. Its value at Feb 2020 was just over £16,000 and then it plummeted to just over £13,000 in March 2020.  

According to Foresters, at age 18 the account will mature and be referred to as a matured CTF ISA. It will continue to be invested in the same funds within a Stocks and Shares ISA. 

She already has a Help to Buy ISA with Natwest but only has a few hundred pounds in it. I understand that she could continue to hold and invest in both these types in the same financial year.

Foresters state that they are not allowed to accept further contributions from maturity but offer the following options:

• Add contributions

• Add a Lifetime ISA

• Make an encashment (she defo doesn’t want to do this)

So, it’s between the first 2 options. I also understand that she could continue to hold and invest in all 3 types (HTB, S&S and LISA) in the same financial year. 

The aim would be to maximise the government bonus but not tying it all up in the LISA in case she needs access to it and was penalised for this. 

Am I right in thinking that the max bonus per year would be £1,000 based on saving £4,000? Therefore, would it be better to only transfer that amount to the LISA? If she were to transfer say £10,000 to the LISA would she still only receive a £1,000 bonus? 

If that were the case then she could transfer a further £4,000 the following financial year? 

I know that she can only get the bonus on one so I imagine she would close the HTB ISA at some point as the LISA will give the bigger bonus. Also, am I right in thinking that she can not transfer larger amounts into the HTB ISA as it’s capped at £200 per month? 

Thank you for reading and any thoughts would be appreciated.

Alexland

I suggest assessing the whole market as Foresters Life products are generally not considered attractive.

From age 18 only £4k per tax year can be transferred into a LISA for a 25% bonus of up to £1k per tax year so if she wanted to move the money into a LISA wrapper it would take multiple tax years. On the LISA it's important to consider if she want a Cash or S&S LISA depending on her attitude to risk and when she is likely to spend the money. Generally S&S investments are for periods of at least 5 years preferably much longer to avoid needing to withdraw while markets are low. The expected date of access should influence the asset allocation as she can probably take more volatility risk if investing for longer.

There is no harm keeping the HTB ISA going while she is not a property owner if she finds the interest rate attractive. Look at the MSE guide to compare rates for the highest paying HTB ISAs accepting inbound transfers. As you say they are different types of ISA (a HTB ISA is a type of Cash ISA which is different to a LISA in either Cash or S&S) so she is fine to contribute into both during the same tax year subject to their individual product contribution limits which are £4k per tax year on the LISA and £200 pm on the HTB ISA.

Also in terms of getting the bonus once this only applies to a property purchase. There is nothing stopping her solicitor claiming a HTB ISA bonus for a qualifying property purchase and then also keeping the LISA with accumulated bonuses for penalty free withdrawal from age 60+

JF2019

Thank you Alexland, that's very helpful and gives us lots to think about.

I was wondering about moving it away from Foresters. It was originally with Children's Mutual but Foresters acquired it a few years ago. We are happy with the value but it seems to have fared better in the earlier years. I guess we would just be being lazy leaving it there. 

I wasn't sure if the fact that it was already in an S&S CTF which would automatically become a matured CTF ISA meant that she could move more than the 4k to their LISA but from what you're saying that's a no.

Risk wise, at 18, she's happy to trust me (gulp). I have to say there have been some hairy moments with her CTF (2008 and 2020) but it always bounced back. She plans to go to uni locally so she shouldn't need the money for a few years and there is no rush for her to leave home. 

So if they automatically turn it into a S&S ISA then she would just transfer it to an S&S ISA with another provider? (18k or 14k if also having a LISA) Then decide who to go with for the LISA.

I didn't realise she could use the HTB ISA bonus and still keep the LISA bonus for later in life, although that's a long time for it to be tied up.

Thanks again, although we have over 6 months, I want to start getting my head around her options. 

Alexland

Yes she could transfer it to another ISA provider although in terms of splitting it many ISA providers don't allow partial transfers out so that would need checking although it might be easier to just withdraw £4k and deposit it in a new LISA as it doesn't sound like she will yet in be in position to make full use of her £20k per tax year adult ISA contribution allowance anyway.

JF2019

Alexland said:

Yes she could transfer it to another ISA provider although in terms of splitting it many ISA providers don't allow partial transfers out so that would need checking although it might be easier to just withdraw £4k and deposit it in a new LISA as it doesn't sound like she will yet in be in position to make full use of her £20k per tax year adult ISA contribution allowance anyway.

Ahhh that's interesting re the allowance of partial transfers, again I'm learning something new so glad I asked. So a 4k encashment could be an option even though we'd ruled that out then opening a new LISA with it. Meanwhile she would transfer the full remaining amount. 
 Thanks Alexland.