MSE News: Martin Lewis: Is a Lifetime ISA win coming in the Budget?

MSE_Helen_K

A penalty paid by first-time buyers accessing savings in Lifetime ISAs (LISAs) when buying homes above the scheme's £450,000 property price limit could be scrapped, it's been revealed...

Read the full story:
'Martin Lewis: Is a Lifetime ISA win coming in the Budget?'

If you haven’t already, join the forum to reply.

WillPS

This is great news.

To be really pedantic, there's still a (tiny) penalty, I think. Worked example - LISA with 2 years of full contributions, each added on the first day of each tax year for the sake of easy numbers, imagined flat interest rate of 2%

Tax year 22/23 - £4k in April 5th 2022 - . HMRC add £1k end of May.
April 4th 2023 balance is £4000 + £80 (interest) + £1000 + £16.50ish (interest on govt top up) = £5096.50

Tax year 23/24 - - £4k in April 5th 2023 - . HMRC add £1k end of May.
April 4th 2024 £5096.50 for this years (as above) + £5198.50ish (last year's with interest added) = £10294.

Then withdraw April 5th 2024, penalty of 20% taken - redemption value of £8235.20.

If the same deposits were paid at the same time in to a standard cash ISA with the same interest, the redemption value would be £4161.60 + £4080 = £8241.60. 

Still, it'll mean the risk element is gone, which I welcome.

zagfles

What about the Help to Buy ISA house price limit which is just £250k? Surely that should be raised/scrapped too?

justwhat

They should alter the age restrictions. 

MSE_Helen_K

zagfles said:

What about the Help to Buy ISA house price limit which is just £250k? Surely that should be raised/scrapped too?

Hi zagfles, this is something Martin has responded to on Twitter. He said: 

Many asking "Will Help to Buy ISAs limits change" too? I'm afraid I think that's unlikely (tho I dont know) for two reasons:
 - They're no longer available
 - There isn't a withdrawal penalty so your money isn't locked in

U can shift H2B to LISAs (but only a max £4k/tax year)

https://twitter.com/MartinSLewis/status/1760702885753438483

AMOHARA

I am so worried about this change - surely this is the only thing keeping starter flats below £450k in London. My kids have saved hard for a deposit and it looks like together they can buy a 2 bed for £450 - the price many seem to be held at due to the cap. Raising this to £500k just means flat prices in the capital will go up to guess what - £500! 

zagfles

MSE_Helen_K said:

zagfles said:

What about the Help to Buy ISA house price limit which is just £250k? Surely that should be raised/scrapped too?

Hi zagfles, this is something Martin has responded to on Twitter. He said: 

Many asking "Will Help to Buy ISAs limits change" too? I'm afraid I think that's unlikely (tho I dont know) for two reasons:
 - They're no longer available
 - There isn't a withdrawal penalty so your money isn't locked in

U can shift H2B to LISAs (but only a max £4k/tax year)

https://twitter.com/MartinSLewis/status/1760702885753438483

It's true the money isn't locked in, but people set up HTB ISAs because of the govt bonus and now find they won't get it because house prices have gone up. A double whammy for those who live and work in expensive areas, having to pay a higher price for a house and not getting the bonus they were expecting because they have to pay a higher price! How is there any fairness or logic to this? 

They can move to a LISA but a LISA is useless if they're going to buy within a year, because you have to have held the account for 12 months. And as above can only move £4k a year. 

Surely if the govt come up with one scheme to help buyers eg HTB ISA, and then come up with another ie LISA, they should allow some sort of transition between the two rather than expecting people to move over manually and miss out if they don't?

How about allowing transfers between a HTB ISA and a LISA which don't use up the LISA £4k limit, and which backdate the effective start date of the LISA to the HTB ISA open date so they can buy within a year of the transfer? 

Does Jeremy read MSE ? (he should!)

eskbanker

zagfles said:
Surely if the govt come up with one scheme to help buyers eg HTB ISA, and then come up with another ie LISA, they should allow some sort of transition between the two rather than expecting people to move over manually and miss out if they don't?

They did allow a transition between the two for the first tax year after LISA was launched, which provided a one-off opportunity to change horses before the steady state £4K transfer limit came into play, so anyone already with a HTB ISA in 2017/18 did have the opportunity to transition to LISA with their full balance, but that was always framed as a once-only concession.  Obviously anyone opening a HTB ISA after the launch of LISA had the chance to choose which product suited their needs better with all the facts in front of them.

I agree with your point about property value cap though, the fact that HTB is on its way out doesn't change the fact that it's still got another six years to run, so if it's accepted that the LISA value cap merits review then logically that should also apply to HTB - the lack of withdrawal penalties for the latter doesn't compensate for not being able to use the product as intended, some 9-15 years after it was launched....

zagfles

eskbanker said:

zagfles said:
Surely if the govt come up with one scheme to help buyers eg HTB ISA, and then come up with another ie LISA, they should allow some sort of transition between the two rather than expecting people to move over manually and miss out if they don't?

They did allow a transition between the two for the first tax year after LISA was launched, which provided a one-off opportunity to change horses before the steady state £4K transfer limit came into play, so anyone already with a HTB ISA in 2017/18 did have the opportunity to transition to LISA with their full balance, but that was always framed as a once-only concession.  Obviously anyone opening a HTB ISA after the launch of LISA had the chance to choose which product suited their needs better with all the facts in front of them.

I agree with your point about property value cap though, the fact that HTB is on its way out doesn't change the fact that it's still got another six years to run, so if it's accepted that the LISA value cap merits review then logically that should also apply to HTB - the lack of withdrawal penalties for the latter doesn't compensate for not being able to use the product as intended, some 9-15 years after it was launched....

Didn't realise that - but someone in 2018 may have thought they'd easily be able to get a sub £250k house - average house price was about £225k, now it's about £285k. Surely any house price limit in both HTB and LISAs should be indexed with house price inflation, otherwise what's the limit for? 

eskbanker

zagfles said:

eskbanker said:

zagfles said:
Surely if the govt come up with one scheme to help buyers eg HTB ISA, and then come up with another ie LISA, they should allow some sort of transition between the two rather than expecting people to move over manually and miss out if they don't?

They did allow a transition between the two for the first tax year after LISA was launched, which provided a one-off opportunity to change horses before the steady state £4K transfer limit came into play, so anyone already with a HTB ISA in 2017/18 did have the opportunity to transition to LISA with their full balance, but that was always framed as a once-only concession.  Obviously anyone opening a HTB ISA after the launch of LISA had the chance to choose which product suited their needs better with all the facts in front of them.

I agree with your point about property value cap though, the fact that HTB is on its way out doesn't change the fact that it's still got another six years to run, so if it's accepted that the LISA value cap merits review then logically that should also apply to HTB - the lack of withdrawal penalties for the latter doesn't compensate for not being able to use the product as intended, some 9-15 years after it was launched....

Didn't realise that - but someone in 2018 may have thought they'd easily be able to get a sub £250k house - average house price was about £225k, now it's about £285k. Surely any house price limit in both HTB and LISAs should be indexed with house price inflation, otherwise what's the limit for? 

Just speculating here, but it may be seen as undesirable to change the product terms to introduce indexation, quite a few years after launch, at which point there was no indication of it being added, despite both being inherently long-term plans.  Obviously any change in legislation or rules & regs will involve winners and losers, but I can imagine some being particularly aggrieved if they were unable to use the products under the old rules but would have been able to if they'd been changed in time.

MSE_Helen_K

WillPS said:

This is great news.

To be really pedantic, there's still a (tiny) penalty, I think. Worked example - LISA with 2 years of full contributions, each added on the first day of each tax year for the sake of easy numbers, imagined flat interest rate of 2%

Tax year 22/23 - £4k in April 5th 2022 - . HMRC add £1k end of May.
April 4th 2023 balance is £4000 + £80 (interest) + £1000 + £16.50ish (interest on govt top up) = £5096.50

Tax year 23/24 - - £4k in April 5th 2023 - . HMRC add £1k end of May.
April 4th 2024 £5096.50 for this years (as above) + £5198.50ish (last year's with interest added) = £10294.

Then withdraw April 5th 2024, penalty of 20% taken - redemption value of £8235.20.

If the same deposits were paid at the same time in to a standard cash ISA with the same interest, the redemption value would be £4161.60 + £4080 = £8241.60. 

Still, it'll mean the risk element is gone, which I welcome.

Thanks for flagging this WillPS - it's a really interesting point.