Cash or Stocks and Shares LISA for additional retirement savings?

Watson_203

I used a Help to Buy ISA to purchase my first house and am looking at opening a LISA, before they are scrapped next year. I am intending to use this LISA to save for retirement and open it with a small investment now to secure the account.

I am 31 and so initially planned to open a Stocks and Shares LISA, as this account will be for very long term savings. However, now that I have seen that interest from Stocks and Shares ISAs will be taxed at 22% from April 2027, I am not sure whether it would be better to go with the Cash LISA instead.

Even with that tax, is it still worth it in the long run? I know that moneys in Stocks and Shares LISAs also cannot be transferred to Cash ISAs unless you take it out of the ISA and reinvest it, counting it against what will be the £12,000 yearly limit.

I will still be continuing to prioritise my employer pension, I'm a teacher so I intend to capitalise on the good pension as much as possible!

Thanks for anybody taking the time to read and answer my question!

El_Torro

The 22% tax on an ISA will be for cash in the ISA. There is no plan to tax money invested in stocks and shares that is in an ISA.

A Stocks & Shares LISA is probably better than a Stocks & Shares ISA for retirement. Due to the government uplift. The problem being that if you access the money before you're 60 then you get hit with the 25% penalty, which is more than the uplift. You might prefer to use a S&S ISA since you can access the money whenever you want without a penalty.

Since you are a teacher then overpaying your pension might be the best solution of all, when investing for retirement.

dunstonh

I am 31 and so initially planned to open a Stocks and Shares LISA, as this account will be for very long term savings. 

That is entirely logical for the time scale involved. You'd be daft using a cash-based one.

However, now that I have seen that interest from Stocks and Shares ISAs will be taxed at 22% from April 2027, I am not sure whether it would be better to go with the Cash LISA instead.

Your understanding is incorrect. S&S ISAs remain tax-free with the exception of interest paid on platform cash. Many platforms don't pay interest on platform cash, so there's nothing to lose there. And even those that do tend to pay a pittance, say you're talking pennies rather than anything else.

The changes don't currently apply to the Lifetime ISA.

I will still be continuing to prioritise my employer pension, I'm a teacher so I intend to capitalise on the good pension as much as possible!

You should also look at the additional pension options on the Teachers Pension Scheme. Pound for pound, these are valuable.

masonic

The Lifetime ISA is not mentioned as one of the ISA types subject to a charge on interest.

Any such charge would be pretty minimal if the LISA is used for investments and uninvested cash balance is kept minimal (as one would ordinarily do due to low rate of interest on uninvested cash).