Complex ISA transfer + LISA questions

kurisubo4

Hi all,

I currently have:

• a Help to Buy ISA (opened a few years ago, last paid into this year, containing £12k, with a terrible interest rate),
• a Stocks and Shares ISA (opened a few years ago, last paid into this year, with much better returns),

both with Santander. I have paid £6k into ISAs this year, so have £14k of my allowance left.

I am still eligible for a Lifetime ISA. If I opened a Lifetime ISA now, I could theoretically pay in £12k by mid-April 2025. I'm not looking to buy a house before then, but I am looking to buy one eventually, and I have emergency savings elsewhere, so it seems there's no huge risk in doing this. There are also potential benefits: I've maxed out my H2B ISA, but if I wanted to keep saving for a few more years, a LISA would give me a bigger bonus.

So my questions are as follows:

1. Can I transfer £8k from my H2B ISA to my S&S ISA without losing the tax-free status? I don't seem to be able to do this via online banking, but maybe there's a form somewhere, or I need to book an appointment to speak to someone.
2. If I understand correctly, I can't pay into a LISA and a H2B ISA during the same financial year unless I close my H2B ISA. Is this true? If so, can I open a LISA, transfer the remaining £4k from my H2B ISA to my LISA, and close the H2B ISA at the same time, without losing the tax-free status or breaking the ISA rules? And (since Santander doesn't offer LISAs) who would I even speak to about doing this?
3. If this isn't possible: would I lose anything (apart from £12k of my tax-free allowance) by simply closing the H2B ISA, getting the funds transferred to my savings account, and then paying those funds into the other ISAs in cash?
   
   
4. A different kind of question: is a LISA worth it (very) long-term? Picking some example numbers: If I pay £4k a year into a LISA for the next 20 years, and it averages 3% interest on contributions, I'll have £80k + £20k bonus + £20-30k interest. On the other hand, if I pay £4k into a S&S ISA for the next 20 years, and it averages 8% annual returns, I'll have £80k + £100-120k interest. This makes sense: the generous short-term benefit has to be offset long-term, and interest will keep compounding whereas the bonuses won't. I suppose the honest answer is "it depends on how interest rates change", so I guess I'm asking those with more experience and/or insight for their gut feeling: at what point does it become better to save in a S&S ISA rather than a LISA?

Thanks!

amanda1024

kurisubo4 said:
4. A different kind of question: is a LISA worth it (very) long-term? Picking some example numbers: If I pay £4k a year into a LISA for the next 20 years, and it averages 3% interest on contributions, I'll have £80k + £20k bonus + £20-30k interest. On the other hand, if I pay £4k into a S&S ISA for the next 20 years, and it averages 8% annual returns, I'll have £80k + £100-120k interest. This makes sense: the generous short-term benefit has to be offset long-term, and interest will keep compounding whereas the bonuses won't. I suppose the honest answer is "it depends on how interest rates change", so I guess I'm asking those with more experience and/or insight for their gut feeling: at what point does it become better to save in a S&S ISA rather than a LISA?

Thanks!

I don't know much about help to buy ISAs, but for this question surely the right comparison would be to compare a S&S ISA with a S&S LISA, *or* a cash ISA with a cash LISA. With cash, rates are lower for LISAs but in the short term the bonus means LISA wins. With S&S I think it's possible to have the same investments in either, so then it's a trade off between being able to access v the bonus 

kurisubo4

amanda1024 said:

I don't know much about help to buy ISAs, but for this question surely the right comparison would be to compare a S&S ISA with a S&S LISA, *or* a cash ISA with a cash LISA. With cash, rates are lower for LISAs but in the short term the bonus means LISA wins. With S&S I think it's possible to have the same investments in either, so then it's a trade off between being able to access v the bonus 

Oh, I think H2B ISAs are all cash ISAs, so I assumed LISAs were the same. But you're right that that might not be true - thanks.

But no, I think my question stands. If I've understood ISA rules right (and please correct me if not!), then I can only pay into one S&S ISA per year and one cash ISA per year - right? And LISAs are capped at £4k per year. So, assuming I can save enough to max out my ISA allowance every year, my choices are:

• £4k into a cash LISA + £16k into a S&S ISA, or
• the full £20k into a S&S ISA.

(Or I guess I could put £4k into a S&S LISA + £16k into a cash ISA, or £20k into a cash ISA. But that seems like the wrong way round: given that I have plenty of emergency savings, I think I probably want to be putting the larger chunk into S&S.)

masonic

1. Yes, you can do this. You need to apply for a transfer in to your S&S ISA provider.

2. Not correct, you CAN pay into a LISA and HTB ISA in the same tax year as they are different types of ISA (HTB ISA being a cash ISA, but LISAs have their own type). This means in 1 above, you would not need to transfer to your S&S ISA, you could just transfer £4k per tax year directly to the LISA.

3. Not applicable

4. Over the long term (e.g. for retirement) you'd be better off with a S&S LISA (yes they do exist). For a house purchase in the more distant future, this could be appropriate, but carries with it some additional risk and the need to reduce risk nearer the time you intend to buy. It may result in you having to delay your purchase if you are unlucky.

kurisubo4

masonic said:

1. Yes, you can do this. You need to apply for a transfer in to your S&S ISA provider.

2. Not correct, you CAN pay into a LISA and HTB ISA in the same tax year as they are different types of ISA (HTB ISA being a cash ISA, but LISAs have their own type). This means in 1 above, you would not need to transfer to your S&S ISA, you could just transfer £4k per tax year directly to the LISA.

3. Not applicable

4. Over the long term (e.g. for retirement) you'd be better off with a S&S LISA (yes they do exist). For a house purchase in the more distant future, this could be appropriate, but carries with it some additional risk and the need to reduce risk nearer the time you intend to buy. It may result in you having to delay your purchase if you are unlucky.

Very helpful - thank you!

amanda1024

kurisubo4 said:

amanda1024 said:

I don't know much about help to buy ISAs, but for this question surely the right comparison would be to compare a S&S ISA with a S&S LISA, *or* a cash ISA with a cash LISA. With cash, rates are lower for LISAs but in the short term the bonus means LISA wins. With S&S I think it's possible to have the same investments in either, so then it's a trade off between being able to access v the bonus 

Oh, I think H2B ISAs are all cash ISAs, so I assumed LISAs were the same. But you're right that that might not be true - thanks.

But no, I think my question stands. If I've understood ISA rules right (and please correct me if not!), then I can only pay into one S&S ISA per year and one cash ISA per year - right? And LISAs are capped at £4k per year. So, assuming I can save enough to max out my ISA allowance every year, my choices are:

• £4k into a cash LISA + £16k into a S&S ISA, or
• the full £20k into a S&S ISA.

(Or I guess I could put £4k into a S&S LISA + £16k into a cash ISA, or £20k into a cash ISA. But that seems like the wrong way round: given that I have plenty of emergency savings, I think I probably want to be putting the larger chunk into S&S.)

LISAs are treated as a separate type - so in one tax year you can add new money to one cash ISA (inc HTB), and one S&S ISA, and one LISA (cash or S&S), up to £20k in total. Potentially changing next year anyway to be able to add to more than one of each

Angelica123

While you can pay into both a LISA and HTB, you can only use one to claim that first time buyer bonus. There's no penalty if you withdraw money from HTB for other reasons as the bonus is only applied at the time of completion.