Is the LISA going towards a dead end?

boingy

The fundamental problem for using LISAs for purchasing a house is that they are not significant enough unless you wait 20-30 years to buy. An extra £1k per year takes a long time to make any real difference to a purchase. They much more sense as a vehicle for boosting retirement funds. 

Hoenir

Kaizen917 said:

Allegedly, Hunt said he wanted to reform the LISA but had no chance to do it in this budget. Thats possible but it doesnt quite add up when they are putting effort on a UK ISA at the same time.

Easy from the limited media coverage given to assume that the budget is simply about personal taxes, excise duties and savings allowances. The UK ISA is just part of something far bigger and wide ranging. That hopefully will have an impact on improving the economic prosperity of the country as a whole. House prices require no further artificial stimulus. Simply stagnating in real terms would be beneficial and require no further taxpayer input. 

eskbanker

boingy said:

The fundamental problem for using LISAs for purchasing a house is that they are not significant enough unless you wait 20-30 years to buy. An extra £1k per year takes a long time to make any real difference to a purchase. They much more sense as a vehicle for boosting retirement funds. 

The intention has only ever been to help with saving up for a deposit, so even someone buying at the £450K cap could accumulate 10% of that within a LISA within nine years, ignoring interest or growth - the fact that 'only' £9K of that would be bonuses is hardly a realistic basis on which to denigrate the product, especially when it mirrors its predecessor scheme!

cloud_dog

Kaizen917 said:

Im glad there are people also interested in the topic.

I dont know if I came across the right way in the original post but I dont insist that LISAs are bad right now. People can hold both cash and investment ones at relatively similar terms as in the normal ISAs, depending on what their goals are. I really hope they remain competitive.

My issue is rather that the longer they are neglected, the more will the few providers have an incentive to put people off with bad offers. We hope the market will prevent such scenario but its hard to expect otherwise in the medium to long-term.

And also, there is a lot more that could be changed about them even if they dont touch the 25% penalty, things such as not taking up from the standard ISA allowance (we are due at least some increase to the 20k limit anyway) or not being able to contribute between 50 and 60 and where btw, it makes it accessible later than a SIPP.

Allegedly, Hunt said he wanted to reform the LISA but had no chance to do it in this budget. Thats possible but it doesnt quite add up when they are putting effort on a UK ISA at the same time.

I think the Government might see the LISA penalty situation and possibly the cap as an annoyance, rather than a fundamental flaw that requires resolution as a priority.  Don't get me wrong I'm not trying to belittle those two aspects but, I believe the Government have some structural concerns over ensuring available liquidity or capital in our home based markets for businesses*.  It is the same reason why they have / are (???) encouraging pension funds to alter their default offering slightly to ensure a slightly higher UK weighting (I think another 5% may have been commented on, but I am not certain on this). 

* - Am a little unsure how retail investors would make a significant dent in this TBH.

george4064

In the past, I contributed the max to a S&S LISA for 3 tax years as a sort of diversification against the LTA that I was projected to hit based on a set of conservative ssumptions.

Since the LTA has been abolished I haven't contributed anymore and instead focused my savings (pension aside) on S&S ISA. I might contribute more to it in the future, but I'm just less bothered by it since LTA was abolished.

I took this opportunity to try out a different style of investing (for better or for worse!). In order of size; core holding is a multi-factor equity ETF, then Monks IT and finally two thematic ETFs (cyber security and battery value chain).

cloud_dog

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

There may still be one or two scenarios where a SS arrangement/pension contributions may be of additional value, e.g. where someone has a large postgraduate and or maters SF loan etc.

This needs to be weighed against the additional benefits a pension offers over a LISA, e.g. inheritance tax 'protection', and if an individual ever needs to claim means tested benefits.

eskbanker

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

masonic

eskbanker said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

I presume this is alluding to the fact that there is less to be gained from salary sacrifice (made before deduction of now lower employee NI contributions). But I would describe as LISAs being less inefficient rather than "very efficient". Though better for drawing down sums above the £15.7k PA+TFLS.

eskbanker

masonic said:

eskbanker said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

I presume this is alluding to the fact that there is less to be gained from salary sacrifice (made before deduction of now lower employee NI contributions). 

Perhaps, although the way the post was punctuated implied (to me) that LISA's efficiency is better in 2024/25 full stop, rather than specifically versus sal sac?

cloud_dog

eskbanker said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

The overall difference (savings) between a SS pension arrangement and a LISA will widen in the LISAs favour due to the SS NIC saving reducing to 8%, so overall SS pension BRT contribution benefit 28%, LISA benefit 25%.  When you then factor in the basic assumption for taxing the 75% of the pension*, the LISA (will be) a clear winner.

* - of course an individuals circumstances will dictate the over all benefit re liable taxation on the pension.