Help To Buy vs Lifetime ISA
Dom Beer and Chris Beer
Disclaimer: Help to Buy ISA's are no longer available and therefore this article is comparing existing Help to Buy vs. Lifetime ISA's
Most of us have heard of the government Help to Buy ISA, but have you heard of the similar scheme, Lifetime ISA?
Here we will discuss the benefits, drawbacks and when is best to use them.
Help to Buy ISA – What is it?
The government Help to Buy ISA is a great way for people to get themselves on the property ladder by lending a hand when it comes to raising a deposit. The government will contribute 25% (tax-free) of your contributions up to £3,000; meaning your £12,000 deposit could become £15,000. This can be used only for purchasing your first home. You must be at least 16 to open a Help to Buy ISA.
5 Benefits of the Help to Buy ISA:
25% Bonus
The government will contribute a 25% bonus of your contributions.
You could receive up to £6,000 towards a deposit per couple
Each applicant is treated separately so therefore you can contribute to 2 Help to Buy ISA’s depending on your circumstances.
Tax-free interest
You can receive tax-free interest on the ISA as this comes under your annual ISA allowance.
Can be used for any property
As long as its in the UK and you intend to occupy it.
Access to cash and the interest, but not the bonus
You can withdraw your contributions as well as the interest on it at any time, but not the bonus.
5 Drawbacks of the Help to Buy ISA:
Maximum contributions
£200 monthly, £1,200 extra in the first month and £12,000 total. This means it will take at least 4 and a half years to achieve the maximum contributions and the £3,000 bonus.
Minimum contributions
On the flipside, in order to receive any bonus from the scheme you must have saved at least £1,600 to receive the 25% bonus which – in this case – would be £400.
The bonus goes to your solicitor
The government will pay your bonus directly to your solicitor or conveyancer just before completion and they will need to process the application and you will most likely be charged £50 plus VAT.
You cannot use the bonus towards the initial deposit
To prevent buyers using the bonus and then pulling out and taking the cash, you can only receive the bonus on completion, however you can use your Help to Buy ISA contributions for the deposit; the bonus will have to be received later.
Be careful of the value cap
In all areas outside of London, the Help to Buy ISA will only be valid if you are buying for £250,000 or less of the whole property value, regardless of whether you are buying a share or the whole property. In London this cap increases to £450,000. Also, the property must be bought with a mortgage.
Lifetime ISA – What is it?
Similar to the Help to Buy ISA, the Lifetime ISA (LISA) is a government scheme that will match 25% (tax-free) of your contributions towards buying your fist home… or retirement. This ISA can be used either towards the deposit of your first home or funding your retirement – or both. If you use it towards your first home, you can retain the account to continue using it for your retirement. You must be aged between 18 and 39 to open a Lifetime ISA and can contribute until age 50.
5 benefits of the Lifetime ISA:
25% Bonus
The government will contribute a 25% bonus of your contributions.
Can contribute up to £4,000 per year
Meaning you will receive £1,000 per year bonus. Also, if the account receives the maximum from the starting age of 18 until the final contribution age of 50, you could receive £33,000 as a tax-free bonus!
Each applicant is treated differently
Like the Help to Buy ISA, if you are party to a joint purchase, you may be able to benefit from two Lifetime ISA’s contributions.
Can be used for mortgage deposit
Unlike the Help to Buy ISA, the LISA can be used towards the deposit of a mortgage as well as the property.
Annual contributions can be monthly, lump sum, split…
… it’s really up to you, just as long as you don’t exceed the annual limit of £4,000.
5 Drawbacks of the Lifetime ISA:
You will have to wait one year
You must have had the LISA open for at least one year before you can use it towards a deposit.
Max purchase price
Like the Help to Buy ISA, the LISA has a purchase cap. The maximum – regardless of the area (in the UK) – you can purchase using a LISA is £450,000.
Could cost you
The Lifetime ISA is not as easy to access the cash when not using it for purchasing your first home or retirement and may incur fees as a result of this.
You must be a first time buyer
This means no property in the world has ever had your name on it.
Less flexible
When comparing to the Help to Buy ISA, LISA’s have more stringent rules as to accessing your cash as well as opening the account.
To Summarise…
The pros and cons of both the Help to Buy ISA and the Lifetime ISA schemes, the LISA offers a greater contribution and higher bonus opportunity with the option to use more freely when it comes to the deposit of your first home, however the Help to Buy ISA provides safety that should you need to access the cash in your ISA you can do so without incurring any fees
About Beerstone
Beerstone Financial Services was established in 1996 by Chris Beer, our Founding Director, who still plays a key role in the company and ensures we maintain the best service.
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