The Lifetime ISA (LISA) launched on 6 April 2017, and just like the Help to Buy ISA, it gives a 25% bonus on top of what you save. The LISA is designed both to help you buy your first home, and to save for retirement, and can be opened by anyone aged 18 to 39.
The main difference is that you can save £4,000 a year in a Lifetime ISA, compared with £2,400 (£3,400 in year one) in a Help to Buy ISA. The bonus is also paid differently – with a Lifetime ISA it’s paid annually until April 2018 and then monthly. Plus, with a LISA, you need to wait a year before using it to buy a home, and there’s a penalty for early withdrawal.
You can have both a Help to Buy ISA and a Lifetime ISA
However you can only use the bonus from one of them towards buying a house.
Use the LISA for the 25% bonus to buy a home, you won’t get the bonus with the Help to Buy ISA, but you can still keep the money plus the interest (and use it towards buying your home).
Use the Help to Buy ISA for the 25% bonus, and you’d have to pay a penalty to use your LISA savings for a property, though you would still be able to use it and get the bonus for retirement savings.
While the LISA allows you to save more, the Help to Buy ISA wins for some as our tables shows:
TYPE OF ISA LIFETIME ISA HELP TO BUY ISA
Max contribution? £4,000 pa £2,400
Lump sums? Yes No, monthly
Max bonus? £32,000 (over 32 years) £3,000 (over 4.66 years)
Bonus paid? Annually (2017/18 tax year) Completion of house purchase
Investment option? Yes (stocks & shares LISAs) Cash savings only
Max property price? £450K £250K (£450K in London)
How quickly can I use it? After LISA’s open 12mths £1,600 savings
Who can open it? Anyone aged 18 to 39 First-time buyer aged 16+
What can it be used for? Home/mortgage deposit Mortgage deposit
Can I withdraw money? Yes, at age 60 plus** Yes, anytime (no bonus)
** Lifetime ISA – if you withdraw your money before you are 60 you don’t get a bonus and will pay a penalty.
So, when reviewing your savings and options it’s worth considering what you can do for the children or grandchildren as the savings can soon add up. Speak with your financial adviser for specific guidance.
This information is based upon our understanding of the tax rules April 2017.
The value of investments may fall as well as rise and you may not get back the full amount invested.