Help To Buy ISA or Lifetime ISA?

Do you feel confident that you’ll be buying a house between the ages of 18-39 or know someone who is? Then it’s worth considering either a Help to Buy ISA or a Lifetime ISA (LISA) as a way of helping you save for this!

Both of these ISA’s offer a great alternative to most other savings options due to the cash bonuses that are offered by the government as a helping hand. With Help to Buy ISA’s closing for good on November 30th, now is the time to act and make a decision which of these two options works best for you and your circumstances.

As with most things financial, there is no hard and fast rule as everyone’s personal circumstances range from person to person. To help you decide on which option is best for you and your circumstances see below some key information that is worth considering.

Lifetime ISA

Introduced in 2017, the Lifetime ISA was designed to encourage people to save for their first home OR Retirement, with the government offering a bonus of 25% on top of these tax-free savings.

Pro’s

• Tax-Free Money! If you use a Lifetime ISA for retirement purposes you have the ability to received £32,000 in bonuses from the government.
• Can be used to purchase your first home OR to put towards retirement.
• You can save £4,000 per annum.
• Bonus is paid monthly (So you can earn interest on these bonuses while you save).
• Flexible contributions.

Con’s

• You can only open one between the ages of 18-39.
• 25% penalty on early withdrawals. Which means you could lose from your initial investment. This is because if you contribute say £100 (then receiving the 25% bonus) you will have £125 in your LISA. Should you withdraw these funds and not use them to purchase your first property or have the money be used for retirement, your initial £100 will now only be worth £93.75 after the 25% withdrawal penalty, a total loss of £6.25.
• Must have been open for 12 months before you can use the funds towards a house.

Help to Buy ISA

The Help to Buy ISA was introduced in 2015 and also offers the same 25% government bonus. However, this bonus is applied differently to the LISA and will also be unavailable to new customers as of November 30th!

Pro’s

• Open from the age of 16
• No penalties
• No need to wait one year to use the fund’s as can be used towards a house once funds are above £1,600.

Con’s

• You can usually only save up to £2,400 p.a. With you being allowed to save £3,400 in year one as a lump sum of £1,200 is allowed from outset.
• You can only deposit a lump sum in year one and a maximum of £200 pm thereafter.
• Maximum bonus is only £3,000.
• Closes from 30th November 2019 and MUST be claimed by December 2030.
• Funds receive bonuses when you decide to use towards a property (so no interest can be generated from the bonuses).

So which one is best?

As said above, this is again purely a decision to be made on a case by case basis and after thinking about which of the pro’s and con’s above could affect you. It is possible to run both of them side by side and it’s not an either-or decision that has to be made. It is also possible to transfer Help to Buy ISA’s into Lifetime ISA’s.

Getting a foot on the property ladder can seem like a pipe dream, but with the help of either of these products your dream home could be closer than you think!

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