LISA vs. Help to Buy ISA

CGoble

Hi, I am in need of some advice. I currently have a Help to Buy ISA but I am now wondering whether I'd be better off opening a LISA. If I do so, would I be advised to close the Help to Buy or maintain both? Or are there other ways of saving that are more beneficial. I feel very out of my depth with all of this and just want my money in a safe place where it can earn some interest. 
Thanks!

grumiofoundation

Which is better will depend on various factors but in a lot of cases lifetime ISA is 'better' but the money is not accessible without penalty so is not suitable for cash that you may need to access before house purchase. 

LISA has to be open for a year before a penalty free withdrawal can be made for a house purchase so am assuming you won't be buying for a year. (If you think you may do might as well open a LISA today with £1 to get the 12 month clock ticking)

If you would be looking to save the max. £4000 each tax year then open a lifetime ISA ASAP and you will still be able to pay in this tax year (N. B. - check with provider when their cut off date for subscriptions to count towards this tax year year are). If you would need to use the money in help to buy ISA to contribute to LISA then (assuming you have the ISA allowance remaining) it may well be safer (due to proximity to end of tax year) to withdraw from HTB and deposit into LISA manually rather than using ISA transfer process. 

If you can contribute this tax year by April 2022 (2022/2023 tax year) you will have been able to contribute £12,000 (3 x max. £4000) to lifetime ISA (same max. £3000 bonus as HTB ISA but with potential for more bonus to come). Other main advantage of LISA is it can be used on a property worth up to £450,000 anywhere in the country. Will you be impacted by the £250,000 price limit on HTB ISA outside London?

How much money to you currently have in your help to buy ISA?

You can have and contribute to both HTB and lifetime ISA.

CGoble

Thanks so much. I currently have £9k in my HTB so I'm thinking to perhaps start moving that out into a LISA?

grumiofoundation

CGoble said:

Thanks so much. I currently have £9k in my HTB so I'm thinking to perhaps start moving that out into a LISA?

If you will use LISA rather than HTB ISA for purchase then I can't think of any real reason (other than potentially higher interest rate) to keep funds in HTB ISA.

Do you have other funds you could use to contribute to LISA or would you need to withdraw money from HTB?

Either way would get LISA open ASAP. If you do open with smaller amount e.g. £1 remember to factor this is when you contribute again (£4000 minus initial amount -> in this case would be £3999) as if you then contributed £4000 could get rejected. 

CGoble

Thank you. Are you allowed/supposed to have both a HTB and LISA? I can open a LISA and transfer other funds into this, I'm just not sure on whether to keep my HTB open. 

grumiofoundation

Yes you can have both.
You are allowed to contribute to both in same tax year as they are different types of ISA (There are 4 types, HTB counts as cash)
https://www.gov.uk/individual-savings-accounts

CGoble

Ok thank you. Sorry I have more questions:
- If it's the case that I can have both, can I just use my HTB as a normal savings account, as I am reading that you can only use the bonus on one account when buying a house
- Are you allowed to maintain the HTB without the plan to use it to buy a home? 

grumiofoundation

CGoble said:

Ok thank you. Sorry I have more questions:
- If it's the case that I can have both, can I just use my HTB as a normal savings account, as I am reading that you can only use the bonus on one account when buying a house
- Are you allowed to maintain the HTB without the plan to use it to buy a home? 

Yes you are correct can only use bonus from one of the accounts.

Nothing to stop you using HTB as savings account before you buy a home even if you don't end up using bonus (when no longer first time buyer will need to close).

CGoble

thanks so much for your advice