Lifetime vs Help to Buy ISA – Make the right choice for you

14 Nov 2018 | Comment


In the UK’s last pre-Brexit Budget, Chancellor of the Exchequer, Philip Hammond announced that from 29 October stamp duty relief will be extended to those who purchase properties up to a value of £500,000 through the shared ownership scheme. On top of this, the policy will be backdated to the last budget so that anyone who has purchased a property through the scheme since 22 November 2017 will be entitled to a refund.

Whilst this is welcome news for first-time buyers, it adds to the often overwhelming amount of information and options available for them. Our team of Independent Financial Advisers is here to help first time buyers and guide them through their journey, making sure they understand and utilise potential benefits.

How can I start saving to get on the property ladder?

Over the past few years, the government has introduced considerable measures to help the next generation of first time buyers. These include the Help to Buy ISA in December 2015 and more recently, the Lifetime Individual Savings Account (LISA) in April 2017.

These products were designed to help young people (aged 18 to 40) save, as well as receiving a free bonus, courtesy of the UK Government. However many individuals are still not using the most appropriate product that best matches their circumstances and, as a result, missing out on the benefits available to them.

There are key differences between the Lifetime ISA and Help to buy ISA as seen below. For more information, please see our downloadable guide here:

 

Lifetime ISA Help to buy ISA
How long are they available for? Indefinitely Until 30 November 2019
What is the Maximum property value? £450,000 anywhere in the UK £450,000 for London, £250,000 elsewhere in the UK
What is the bonus? 25% Government bonus tax-free 25% Government bonus tax-free
When it is applied? At the end of each tax year Paid on the completion of first time house purchase
How long must I hold it? Must be held for 12 months

Must have a minimum of £1,600.00

(can be achieved in 3 months)

What is the maximum annual contribution? £4,000.00 £3,400.00 in year 1 and £2,400.00 in each year after
What is the maximum bonus?

£33,000.00 if held of 32 years

(depending on the date of your birthday)

Capped at £3,000.00
Who can open it? Anyone aged 18-39 Any first time buyer aged 16 or older
What can they be used for? First time property purchase or retirement First time purchase only

 

While both have unique benefits, it is important to understand the differences in order to make a decision that best suits your circumstances and provides the greatest benefits.

We advise our clients to consider these factors when purchasing their first time property:

  • Know your budget: many first time buyers choose the Help to buy ISA despite wanting to contribute more. The LISA allows you to save up to £600.00 more in the first year and a further £1,600 in the year after.
  • Know where you want to buy: if you hold a Help to buy ISA and then decide to purchase a property over £250,000, outside of London, you could miss out any Government bonus. If you had chosen the LISA you would have received the bonus in full.
  • Know your timeline: searching for that first home takes time. A LISA must be held for a minimum of 12 months to receive the bonus however by setting up a Help to Buy ISA and making contributions for just 3 months you could save and receive a bonus on completion of the purchase.
  • Know yourself: if you have inherited a share of a property in the past, even if you have never lived there and do not own it now, you would not be considered as a first time buyer. In addition, if you owned a company or held a residential property in trust that you lived in – or were able to live in, you are also not considered a first-time buyer.
  • Know the result: the Help to Buy ISA can only be used towards the mortgage deposit, on completion. It cannot be used for the home exchange deposit (usually 10%). Clients have suddenly found themselves at ‘exchange’ struggling to find the money needed. The Lifetime ISA can be used for both types of deposit.

Your savings and investment strategy plays a vital role in securing your financial future. Whether you are looking to invest for income, growth or both, we can help you find out which ISA option is best for you. To discuss your situation, please contact our Independent Financial Advisers on 029 22 67 57 30.

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