Lifetime ISA - help for first time buyers?

15/09/2017
The Government has announced the launch of a new Lifetime ISA (or LISA), from April 2017, from which savers can receive a 25% bonus which can be put towards buying a home and retirement savings. Declaredly the Government wishes ‘to help young people save flexibly for the long-term throughout their lives’.

The assistance towards buying a home makes it have some similarities with the Help to Buy ISA, but there are also notable differences, please see our infographic below.

Who is eligible for the Lifetime ISA?

You must be between 18 and 40 years old to open a Lifetime ISA account.

How does this ISA work?

  • You save up to £4,000 each year and the Government pays you a bonus of 25% of the amount saved. There is no minimum or maximum monthly contribution but you cannot put in more than £4,000 per year.
  • You can presently save up to £15,240& in ISA form (all types) and this figure increases to £20,000 from April 2017.
  • You can make contributions and have the bonus added from 18 years old up to age 50.
  • Over a lifetime, this means you could save a maximum £128,000 which would mean you receive a maximum £32,000 Government bonus and you stand to receive investment growth both on your contributions and on the bonus.
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Lifetime-ISA-Diagram-SAMC

How can you use the Lifetime ISA to save for a first home?

You can combine your savings and bonus towards a deposit on a first home worth up to £450,000 across the country.

NB This differs from the Help to Buy ISA where for properties outside London, you are restricted to a £250,000 maximum purchase price.

You can only dedicate Lifetime ISA funds towards buying a home from 12 months after you’ve opened the account.

How do you get the money if you’re putting it towards buying a home?

The money is paid directly to your conveyancer: you ask your ISA provider to pay the money across to them.

NB Unlike for the Help to Buy ISA, the money is available to use at exchange of contracts, which we highlighted as one of the flaws of the Help to Buy ISA.

If the purchase falls through, the funds are simply returned to your bank or building society. Any repayment will also not affect your £4,000 maximum annual contribution allowance.

You are only supposed to use the ISA to buy a property you’ll live in and the Treasury has indicated it will seek to claw back the bonus if it is clear you have bought to let. It has tempered this by stating that if your professional or personal circumstances change after you’ve bought, then you will be able to rent out your property.

Can you and your partner both get Lifetime ISAs and put them both towards buying a home?

Yes. Like the Help to Buy ISA, Lifetime ISAs are limited to one per person NOT per home, so 2 first time buyers can both receive and use their own bonus when buying together.


Lifetime ISA (LISA) vs. Help to Buy ISA compared

  LIFETIME ISA (LISA)


HELP TO BUY ISA
How much can you save? £4,000/yr £2,400/yr (£3,400 in year one)


Can you put lump sums in? Tick-AbUSrL.png No-Ihnqw9.png Need to save monthly


What's the maximum bonus? £32,000 (assumes max contribution over 32 years) £3,000 (assumes max contribution over 4 years and 8 months)


When is the bonus paid? Annually in the 2017/18 tax year, then monthly from April 2018 On completion when you buy a home


Can you invest as well as save? Tick-AbUSrL.png with cash & shares LISAs No-Ihnqw9.png Cash only


What's the maximum property price? £450,000 £250,000 (£450,000 in London)


When can you use it to buy a home? After LISA has been opened for 12 months Once you've saved £1,600+


Who can open it? Anyone aged 18-39 Any first time buyer aged 16+


Can I withdraw money if not buying a home? Tick-AbUSrL.png At age 60+, if earlier you don't get the bonus
and have to pay a penalty
Tick-AbUSrL.png At any time, you just don't get the bonus



Can you transfer funds from your Help to Buy ISA to your Lifetime ISA?

Yes. You can do this or simply continue saving into both BUT you can only put the bonus from one of these toward buying a home.

You can only transfer money put in a Help to Buy ISA before 6 April 2017 without impacting your yearly allowance and you have until 5 April 2018 to transfer it across.

If you are intending to buy a property before April 2018 you should opt for opening a Help to Buy ISA if you are eligible, because, as stated, you need to have your LISA up and running for a year before you can dedicate savings within it towards buying a home.

Can you put some of the savings towards a home and some towards retirement?

Yes. You can take out any savings you have remaining in the ISA tax-free after your 60th birthday. You can withdraw the money before you turn 60 but:

a. you won’t get the Government 25% bonus (and any interest/growth associated with this); and
b. you’ll have to pay a 5% charge.

Are there going to be Investment LISAs as well as cash LISAs?

Yes. Unlike Help to Buy ISAs which are cash savings only, with LISAs you also have the option to invest in stocks and shares. As always, the risk profile is higher for investment ISAs but many recommend them as better longer-term investments than cash ISAs.

Can you change LISA providers?

Yes, so you can always look for a better performing LISA provider.

Where can you find comprehensive details of the scheme?

You can view the Government's release concerning LISAs by clicking on Lifetime ISA details.

*Fixed Fee – No Sale No Fee – On all Major Lender Panels


Related News Articles

 
Help to Buy ISA Scheme
18/09/2017
How we uncovered the truth behind the Help to Buy ISA
23/09/2016
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