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Help to Buy ISA v Lifetime ISA

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If you’re trying to decide between a Help to Buy ISA and a Lifetime ISA, which one’s the better option? Can you have both?

How Help to Buy ISAs work

Help to Buy ISAs let you save towards a deposit for your first home. It’s a tax-free savings account, that, unlike ordinary cash ISAs, qualifies for a government bonus. You have to be aged 16 or over to open one.

Who can have one? You have to be aged 16 or over and live in the UK to have one.

How much can you save? You can save up to £12,000 in total. 

How much is the government bonus? For every £1,000 you save, the government will top it up with £250. But you need to have saved a minimum of £1,600 to get the bonus. If you save the maximum of £12,000, you’ll get £3,000 from the government.

How much can you save each month?You’re limited in the amount you can save each month. You can save up to £200 a month, except during the first month, when  you can pay in up to £1,200.  You can’t ‘catch up’ with months you’ve missed. So, you can’t put £50 in a month and then top it up with a lump sum of £5,000, for example.

When do you get the bonus? The government pays this bonus when you complete on your first home. ‘Completing’ means that you (and your mortgage lender) pay for it and you get the keys so you can move in.  You have to close your Help to Buy ISA in order to get the bonus. You never actually see the bonus as it’s claimed by your solicitor and paid straight to your mortgage lender.

What can you use the money for?You can only use a Help to Buy ISA to buy your first home and only if it costs up to £250,000 outside of London or up to £450,000 in London.

SAVVY TIP: If you’re buying with someone else, you can each have a Help to Buy ISA. However, you can only buy a property costing up to £250,000 (£450,000 in London).

Can you combine it with other Help to Buy schemes? You can use your Help to Buy ISA with the Help to Buy equity loan.

What happens if you use the money for something else? In that case, you lose the government bonus.

How long are Help to Buy ISAs available for?You can open a new Help to Buy ISA up until November 30th2019. You can continue to pay into an existing Help to Buy ISA up until 2030. You must claim your government bonus by November 30th2020.

Can you have a Help to Buy ISA and cash ISA in the same tax year?You can only have a Help to Buy ISA or an ordinary cash ISA in the same tax year – you cannot have both. But, don’t panic. First of all, if you already have a cash ISA that you’ve paid into in the same tax year as you take out the Help to Buy ISA, you can transfer up to £1,200 into the Help to Buy ISA. You’d have to transfer the rest into a stocks and shares ISA, or to an ordinary savings account, where the interest won’t necessarily be tax free. If you already have a cash ISA, but you’ve not paid into it since April 6th, you’re free to have a Help to Buy ISA without having to transfer any of the money.

SAVVY TIP: Confusingly, some ISA providers will let you have a Help to Buy ISA and cash ISA in the same tax year. That’s because they operate their ISAs under what’s called a ‘portfolio’ arrangement. You can have more than one cash ISA in your portfolio and it doesn’t break the rules. Most cash ISA providers don’t offer this option.

Can I have a Help to Buy ISA and a Lifetime ISA? You can have a Help to Buy ISA and a Lifetime ISA in the same tax year. However, you can only use the bonus from one of them to pay for your house purchase. You can transfer money from your Help to Buy ISA to a Lifetime ISA, but it will count towards your Lifetime ISA allowance.

How Lifetime ISAs work

A Lifetime ISA is a bit different to a Help to Buy ISA, but there are also some similarities! It’s a tax-free savings or investing account, that, unlike ordinary cash or stocks and shares ISAs, qualifies for a government bonus. Like the Help to Buy ISA, you can use a Lifetime ISA as a deposit towards your first home. However, you can also use it to pay for your retirement instead of or as well as buying your first home.

Who can have one? You have to be aged between 18 and 40 when you open your Lifetime ISA. You can pay into it until you’re aged 50.

How much can you save? You can save up to £4,000 a year.  The maximum you can pay in over the term of your Lifetime ISA is £128,000.

How much is the government bonus? For every £4 you save, the government will top it up with £1. So, if you save £4,000, you’ll get £1,000 from the government. The most the government will contribute is £32,000.

How much can you save each month? There’s no limit on how much you can save each month, although Lifetime ISA providers may set their own minimum or maximum levels.

When do you get the bonus? The bonus is paid monthly. It’s calculated on the basis of money you’ve paid in, not how much your account is worth. So, it doesn’t take interest or growth (if it’s a stocks and shares Lifetime ISA) into account. It’s based on money you’ve paid in from the 6thof one month to the 5thof the next month.

What can you use the money for? You can use your Lifetime ISA to buy a property costing up to £450,000, no matter whereabouts in the UK you’re buying. If you don’t use it for that, or if you have some money left over, you can take that money out once you’re 60.

What happens if you use the money for something else?You lose 25% of the money  you have in your Lifetime ISA. This means you may get back less than you put in. For example, if you pay in £800, you’ll get a government bonus of £200 (25% of £800). If you take the money out for something other than a first home, you’ll lose 25% of your £1,000, which is £250. This will leave you with £750.

How long are Lifetime ISAs available for?You can open a new Lifetime ISA up until November 30th2019. You can continue to pay into an existing Help to Buy ISA up until 2030. You must claim your government bonus by November 30th2020.

Related articles:

Ten things you need to know about the help to buy ISA

Help to buy ISAs – how do they work and who’s paying the highest interest rate?

How do help to buy equity loans work and should you take one out?

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