Are Help to Buy ISAs better than Lifetime ISAs for people who have less money saved?
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snowandlights
Posts: 2 Newbie
Hello,
I currently have a HTB ISA with about £6,000 saved. This is the majority of my savings. I expect to be able to save for a house deposit in 3-4 years and would love to buy my own place. I know that the LISA offers a great £1,000 bonus for every £4,000 put in per year but I'm concerned that if I inherit a share of a property (say if a family member passes), I would no longer be able to use that amount until I'm 60, without losing 25% of the savings (6% of what I put in).
I'm trying not to think so morbidly but just wondering what other people's thought processes are behind this. As most of my savings would be in the LISA, it would be such a loss if I wasn't able to use it for my first house and had to wait for retirement to use those savings?
I guess I wouldn't be able to transfer the LISA back into another type of ISA without paying the penalty fee either?
I currently have a HTB ISA with about £6,000 saved. This is the majority of my savings. I expect to be able to save for a house deposit in 3-4 years and would love to buy my own place. I know that the LISA offers a great £1,000 bonus for every £4,000 put in per year but I'm concerned that if I inherit a share of a property (say if a family member passes), I would no longer be able to use that amount until I'm 60, without losing 25% of the savings (6% of what I put in).
I'm trying not to think so morbidly but just wondering what other people's thought processes are behind this. As most of my savings would be in the LISA, it would be such a loss if I wasn't able to use it for my first house and had to wait for retirement to use those savings?
I guess I wouldn't be able to transfer the LISA back into another type of ISA without paying the penalty fee either?
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Comments
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The cleanest way for an inheritance that includes small shares in a property to be distributed is for that property to be sold within the estate of the deceased and the heirs to inherit a share of the proceeds. That wouldn't change your FTB status. If those who may wish to write you into their will understand your goals and the impact of you inheriting even a tiny share of a property, then this ought to be avoidable. You can always reject an inheritance if it would leave you worse off overall.
The LISA and HTB ISA scheme rules are different and you can't use a HTB ISA in some cases where you could use a LISA (and indeed vice versa). If the criteria and limits of both products are fine for your circumstances then you could opt for the HTB ISA on the basis of a higher interest rate and flexibility to use the cash for anything you like.0 -
The cleanest way for an inheritance that includes small shares in a property to be distributed is for that property to be sold within the estate of the deceased and the heirs to inherit a share of the proceeds.
Hi, thank you for your reply! That is very helpful. Is the above the way inheritance usually works? I've never been in this situation before so I wouldn't even know where to begin. It would be a very, very small share divided between many of us, if anything.0 -
It depends on how the will is written, but it wouldn't be practical to list a whole football team on the deeds of a property.0
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The cleanest way for an inheritance that includes small shares in a property to be distributed is for that property to be sold within the estate of the deceased and the heirs to inherit a share of the proceeds. That wouldn't change your FTB status. If those who may wish to write you into their will understand your goals and the impact of you inheriting even a tiny share of a property, then this ought to be avoidable. You can always reject an inheritance if it would leave you worse off overall.
The LISA and HTB ISA scheme rules are different and you can't use a HTB ISA in some cases where you could use a LISA (and indeed vice versa). If the criteria and limits of both products are fine for your circumstances then you could opt for the HTB ISA on the basis of a higher interest rate and flexibility to use the cash for anything you like.
Inheritances in terms of first time buyer HTB/Lifetime isa bonuses and the stamp duty relief are a grey area of course. The definition refers to never having owned any (major) interest in land which comprises a residential dwelling anywhere in the world – whether your scenario (i.e. you inherited a share of a property as part of an estate, that was sold, and the proceeds paid to you along with any other assets/savings) still makes you count as a first time buyer can be unclear.
Its much simpler in Ireland – a first time buyer means what is says. If you have inherited a house but never bought one you are a first time buyer there for their first time buyer tax relief scheme.
It seems a little unfair that someone could have inherited 20% of their aunt’s £5,000 caravan in eastern Europe – and not qualify – but have been left £500,000 in cash by a grandparent in a will (enough to buy a house outright) but still be eligible. How of course HMRC monitor prior foreign ownership is of course less than clear – as there may be few traceable records if you name was never on any deeds and there was no inheritance tax due.
Calling them schemes for first time ‘buyers’ therefore is highly misleading! Many first time 'buyers' are ineligible.0 -
No doubt a caravan does not confer any legal interest in land, even one situated in eastern Europe, but one could inherit a timeshare in a villa or something similar that would make you ineligible for the scheme even though it would be impossible for you to use your inherited property as a dwelling.It seems a little unfair that someone could have inherited 20% of their aunt’s £5,000 caravan in eastern Europe – and not qualify – but have been left £500,000 in cash by a grandparent in a will (enough to buy a house outright) but still be eligible. How of course HMRC monitor prior foreign ownership is of course less than clear – as there may be few traceable records if you name was never on any deeds and there was no inheritance tax due.
Calling them schemes for first time ‘buyers’ therefore is highly misleading! Many first time 'buyers' are ineligible.
It's worth remembering what the scheme is really there to achieve and who are the main beneficiaries. The scheme exists to prevent the property bubble collapsing and its main beneficiaries are property owners and sellers. On that basis it has done a rather good job. A secondary benefit is that it has allowed some first time owners, who didn't have the means to save for a deposit very quickly, the ability to buy a few months earlier than the otherwise would have, but that only offsets the delay they face due to property being more expensive than it would have been if not for the scheme, and offsets it only partially.
The maximum rate of accrual of free Government money is £2000 over the first year if you spread over 2 tax years, and £1000 per year thereafter. Thus, one group of people who have not been able to benefit from the scheme are those already able to buy outright. The cost of delaying the purchase and arranging a mortgage when you don't need to is likely to far outweigh the benefit of using a LISA or HTB ISA with their limits and conditions.
If the Government was really interested in helping first time buyers (and all buyers), it would have been better for them to refrain from propping up demand and to focus their attention on increasing supply, but this would obviously dent the property wealth of existing owners.0 -
No doubt a caravan does not confer any legal interest in land, even one situated in eastern Europe, but one could inherit a timeshare in a villa or something similar that would make you ineligible for the scheme even though it would be impossible for you to use your inherited property as a dwelling.
It's worth remembering what the scheme is really there to achieve and who are the main beneficiaries. The scheme exists to prevent the property bubble collapsing and its main beneficiaries are property owners and sellers. On that basis it has done a rather good job. A secondary benefit is that it has allowed some first time owners, who didn't have the means to save for a deposit very quickly, the ability to buy a few months earlier than the otherwise would have, but that only offsets the delay they face due to property being more expensive than it would have been if not for the scheme, and offsets it only partially.
The maximum rate of accrual of free Government money is £2000 over the first year if you spread over 2 tax years, and £1000 per year thereafter. Thus, one group of people who have not been able to benefit from the scheme are those already able to buy outright. The cost of delaying the purchase and arranging a mortgage when you don't need to is likely to far outweigh the benefit of using a LISA or HTB ISA with their limits and conditions.
If the Government was really interested in helping first time buyers (and all buyers), it would have been better for them to refrain from propping up demand and to focus their attention on increasing supply, but this would obviously dent the property wealth of existing owners.
Oh I don't disagree any of with the above. All these 'first time buyer' schemes do is push up prices for the next generation of FTBs - and make the problem worse! I have no doubt the major developers advised Osborne that these were good ideas - to boost their profits as has evidently occurred!.
And the inheritance point is still a grey area - if you inherit a share of a house as part of an estate, that house is sold by the executor and you receive the proceeds of the estate (and your name was never on any deeds) are you eligible or not for the HTB/lifetime ISA bonuses and stamp duty relief? It depends!
My reference to a caravan was probably incorrect - but a shack or a barn would qualify if it is a building capable of being lived in. I think the problem as well is that the schemes are confusing and so many people (by definition younger so perhaps less knowledgeable). Why they didn't align the lifetime isa and help to buy isa rules on property thresholds and the application process and what the bonuses can be used for.
Still it keeps this forum busy!0 -
In post #4 I suggested that it depends on how the will is written. Presuming that the will is written in such a way as the heirs inherit a share of the proceeds of the estate (which includes one or more properties), as suggested in post #2, are you aware of any circumstances in which 'it depends'?And the inheritance point is still a grey area - if you inherit a share of a house as part of an estate, that house is sold by the executor and you receive the proceeds of the estate (and your name was never on any deeds) are you eligible or not for the HTB/lifetime ISA bonuses and stamp duty relief? It depends!
Mr Osbourne was not known for his penchant for keeping things simple. That's why we now have a myriad of ISAs and rules surrounding them are so complex HMRC no longer issues a single set of Guidance Notes for ISA Managers.My reference to a caravan was probably incorrect - but a shack or a barn would qualify if it is a building capable of being lived in. I think the problem as well is that the schemes are confusing and so many people (by definition younger so perhaps less knowledgeable). Why they didn't align the lifetime isa and help to buy isa rules on property thresholds and the application process and what the bonuses can be used for.0 -
It's worth remembering what the scheme is really there to achieve and who are the main beneficiaries. The scheme exists to prevent the property bubble collapsing and its main beneficiaries are property owners and sellers. On that basis it has done a rather good job. A secondary benefit is that it has allowed some first time owners, who didn't have the means to save for a deposit very quickly, the ability to buy a few months earlier than the otherwise would have, but that only offsets the delay they face due to property being more expensive than it would have been if not for the scheme, and offsets it only partially.
The maximum rate of accrual of free Government money is £2000 over the first year if you spread over 2 tax years, and £1000 per year thereafter. Thus, one group of people who have not been able to benefit from the scheme are those already able to buy outright. The cost of delaying the purchase and arranging a mortgage when you don't need to is likely to far outweigh the benefit of using a LISA or HTB ISA with their limits and conditions.
If the Government was really interested in helping first time buyers (and all buyers), it would have been better for them to refrain from propping up demand and to focus their attention on increasing supply, but this would obviously dent the property wealth of existing owners.
Hear hear!0
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