ISAs: ‘Lifetime’ or ‘Help-to-Buy’?
Help-to-Buy ISAs are closing… forever. First-time buyers have until the end of the month – November 30th 2019 – to open their ISA (Individual Savings Account) and get up to £3,000; tax free!
What is the Help-to-Buy ISA?
The Government introduced the scheme back in 2015. It offers a 25% bonus to over-16s who are saving for their first home, as a helping hand onto the property ladder. The bonus acts as a top up on your deposited savings. So, when you close your account, the Government will give you 25% of your final total – up to a maximum of £3,000. To qualify for the government bonus, you must have a minimum of £1,600 in your Help to Buy ISA.
For example; if you have a closing balance of £8,000 in your ISA, you’ll get £2,000 – completely free – towards your first home. The ISAs are offered by most banks and building societies. You can also earn interest on top of your savings, depending on your selected bank.
You can take your money out at any time, although you are not permitted to deposit money you’ve withdrawn back into the ISA. And, what’s more, your ISA can be opened with anything over £1.
Help-to-Buy ISAs: What you need to know
As with any savings account of this nature there are, of course, some mitigating conditions to be aware of:
You can only use the 25% bonus towards a house with a purchase price of up to £250,000 (£450,000 in London).
You cannot withdraw the bonus, nor will you ever see it in your bank account. Once you close your ISA, the money will go straight to your solicitors.
The bonus must be used towards the deposit on your property, or to cover your legal fees.
Did you know…
You can deposit up to £1,200 with your first payment. The maximum you can save subsequently is £200 per month.
What will replace the Help-to-Buy ISA?
The Government – not without disapproval – have decided to scrap the popular scheme. So, the new deadline to open a Help-to-Buy ISA is November 30th 2019.
If you’ve currently got a Help-to-Buy ISA that you’re saving into, don’t worry. Your ISA will remain open and you can continue saving as normal until November 30th 2029.
So, where do first-time buyers turn now, then? Well, the current scheme is, effectively, set to be replaced by the ‘Lifetime ISA’ (LISA).
What is the Lifetime ISA?
The LISA is another Government-backed scheme. It gives people aged between 18 and 39 the chance to save tax-free cash, with a bonus of up to £32,000 to put towards their retirement or first home. You can save up to £4,000 a year. Then, in the same way as the Help-to-Buy ISA, the Government will add your 25% on top.
With the LISA, there is no £200 monthly limit on deposits, as is the case with the Help-to-Buy ISA. Instead, you can deposit your savings in lump sums. Another positive is the fact you can save up to £600 more with a LISA – in your first year – than you can with the Help-to-Buy ISA.
The LISA bonus can be used towards your retirement once you reach 60 years of age, or towards a first home worth a maximum of £450,000 – providing you’ve had your LISA for at least 12 months.
Finally, while you’re unable to open a LISA if you’re aged 40 or over, you can still deposit money into your account until your 50th birthday. So, if you open your LISA at the age of 18, and save the maximum until the age of 50, you’re entitled to £32,000 in tax-free cash from the Government – whomever the Government of the day may be.
Which ISA should I open?
It’s worth saying, of course, that you can save into both schemes simultaneously. Though, you can only use one to buy your first home with. If you’re torn between the option that’s best for you, it’s always a good idea to talk to an independent financial planner. Here’s our Director, and Chartered Financial Planner, Liam Winstanley, with further insight into the nuances between the two schemes.
“If you think a Help-to-Buy ISA would be better for you, you need to act quickly. Generally speaking, if you’re a first-time buyer looking to purchase somewhere within the next 12 months, the Help-to-Buy ISA is likely to be a better option than a LISA. The LISA, however, may well be more beneficial if you’re aged 18-39 and your objectives are longer-term.”
“If you’re in any doubt as to the best way to save and invest towards your personal objectives, be sure to speak to an independent financial advisor as soon as possible.”
We’re invested in you
If you’re contemplating your financial future, it’s important to talk to an independent financial advisor. A professional plan can take the pressure off and help you make the most of your money. Whatever your circumstances or situation, with our personal approach and meticulous forecasting, DFP have got you covered. And, when it comes to ISAs and long-term saving, we know our stuff.
Contact us now to find out how we can help your finances flourish.