Lifetime Isa vs Help to Buy Isa: which is best?
Like the Help to Buy Isa (Hisa), it promises to top up first-time buyers’ savings by 25%, but that’s where the similarities end. We’ve put the two head to head to see how they compare, together with our running scores.
The Lisa will be available to those aged between 18 and 40, whether or not they own property. If you already own a home, the Lisa works more like a pension, boosting your initial investment by 25% and offering tax- free access when you reach 60. The Hisa is just for those who’ve never owned a property before, but no age restriction means those aged 16 or over (including the over 40s) can get one.
Score: Lisa 1 – 1 Hisa
You can deposit up to £4,000 a year in a Lisa, however you like. The Hisa is more restrictive, letting you save up to £200 a month plus an extra £1,000 when opening the account. In practice, you can put £3,400 in the Hisa in the first year and then £2,400 each year.
Score: Lisa 2 – 1 Hisa
Anything that’s allowed in a cash or stocks and shares Isa can go into a Lisa, including funds, investment trusts or individual stocks and shares. The option to invest means your money could grow much faster, though it could fall in value too. The Hisa is strictly cash only.
Score: Lisa 3 – 1 Hisa
The Hisa bonus is capped at £3,000, which you’ll earn once you’ve saved £12,000. The Lisa maximum bonus is £1,000 a year, and you can keep saving until you turn 50. If you open the account at 40, the potential bonus is £10,000, but an 18-year-old could get up to £32,000.
Score: Lisa 4 – 1 Hisa
The Lisa pays the bonus much earlier. In 2017/18, deposits get topped up at the end of the tax year, and from April 2018 the bonus will be paid monthly. The big benefit of this is your bonus can earn an investment return. Conversely, the Hisa only gets topped up when you complete your house purchase, so it can’t grow (though the bonus is paid on interest from your
The Hisa bonus timing also means it can’t be used to cover buying costs, such as the exchange deposit, though it can be used to reach the crucial mortgage deposit.
Score: Lisa 5 – 1 Hisa
You can’t cash in a Lisa until you’ve held it for at least 12 months. Hisas can be used once the balance reaches £1,600, so if you switch a Hisa to a Lisa (you’re allowed to hold both, but can only claim the bonus from one), you won’t be able to buy until April 2018 at the earliest.
Score: Lisa 5 – 2 Hisa
If you need emergency access to your Lisa savings, you can cash out at any time, but there’s a catch. Though the government adds £1 for every £4 you save, it’ll also take £1 for every £4 you withdraw if you’re not buying a house, or aged over 60. The Hisa has no penalty access, though you’ll never see the bonus on cash you take out early.
FINAL SCORE: Lisa 5 – 3 Hisa
The Lisa is more generous, more flexible, and lets you invest your money. For most it’s a far better scheme, providing you qualify. However, if you only want to save in cash or are close to buying, you should think twice before converting a Hisa to a Lisa come April 2017.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.