Can I have both a Lifetime individual savings account (Lisa) and a Help to Buy Isa? And if so, can I pay into both from the next tax year? So could I pay £200 a month into a Help to Buy Isa and £4,000 into the Lisa, or would I need to split my money between them?
It makes sense to wait until March before transferring anything over to get the higher interest on the Help to Buy Isa, then transfer pre-2016/17 tax year funds across to the Lisa to get the 25% and then add in a further £4,000 for this tax year, but can you keep any remaining cash you paid into the Help to Buy Isa from 2016/17 to 2017/18?
In 2015, the government introduced Help to Buy Isas in a bid to help first-time buyers get on the property ladder. You can save up to £200 a month (plus up to a £1,000 opening deposit) and this is topped up with a government bonus of 25% to help to fund the purchase of a first home. The bonus is paid when a home is being purchased.
On 6 April 2017, the new Lifetime Isa (Lisa) was launched, which is very similar to the Help to Buy Isa, in that savings are topped up with a 25% bonus. However, the new Lisa allows individuals to save up to £4,000 a year towards the purchase of their first home as well as for retirement. You must be over 18 and under 40 to open a Lisa.
If you’re the right age, you can have both a Help to Buy Isa and a Lifetime Isa, and pay the maximum amount into both. However, if you used the Lisa bonus towards your first home, you could not claim a bonus on the Help to Buy Isa too. The bonus will only be paid on one of your Isas. If you retained funds in your Help to Buy Isa, they would still earn interest and could still be used towards buying your fi rst home. Yes, you could consider transferring your Help to Buy Isa to a new Lifetime Isa, but certain rules apply.
If you transfer the value of your Help to Buy Isa (as valued at 5 April 2017) to the Lifetime Isa in the 2017/18 tax year, it will not count towards your Lifetime Isa allowance of £4,000 and you will receive the 25% bonus on the transfer value. You must do this by 5 April 2018.
Going forward, any further transfers from a Help to Buy Isa will receive the bonus, but will count towards your Lifetime Isa allowance. For example, if you put £1,000 in your Help to Buy Isa after 6 April 2017 and then transferred this to a Lisa, you will only be able to add £3,000 more to your Lisa.
There are currently very few Lisa providers and potentially many people in a similar position, who may be planning to transfer Help to Buy Isas by the deadline date. This high demand could cause a delay with transfer applications, so if you are keen to keep your 2018/2019 Lisa allowance intact, you may want to consider transferring 2016/2017 or earlier contributions before 5 April 2018 to avoid missing the deadline.
Lisa Vaughan is a chartered financial planner at Fogwill & Jones
The best Help to Buy Isas and Lifetime Isas
When it comes to Help to Buy Isas, you have plenty of choice with numerous high street banks and building societies offering the accounts. The best rate available to all at present is 2.27% from Barclays. This account has a minimum initial deposit of £1, allows transfers in and can be managed online, in branch or over the phone.
The next best Help to Buy Isa rate is 2.25% from Buckinghamshire Building Society, followed by several banks and building societies including Nationwide, Halifax and NatWest, with an Isa paying 2%.
If you are aged 18 to 39 and are looking for a cash Lifetime Isa (Lisa), you only have one choice at the moment: Skipton Building Society. The online-only account has an interest rate of 0.5%, the minimum opening balance is £1 and it accepts transfers from Help to Buy Isas.
If you are planning on investing for the long-term, the stock market historically outperforms cash so consider one of the investment Lisas offered by investment firms Hargreaves Lansdown, Nutmeg, and the Share Centre. When choosing an investment Lisa, make sure you compare the range of investments available as well as the fees and charges each provider levies.