The 6th April is the start of the new financial tax year in the UK which means you can now open another cash ISA. For any first time buyers, the Help to Buy ISA is a no-brainer.
The Help to Buy ISA is a scheme aimed at helping young people save for their first deposit. The ISA is a tax free savings account, to which the government will add 25% when the savings are used to buy a property.
- The ISA must be opened between 1st December 2015 and December 2019.
- You must be aged 16 or over.
- You must not own, or have previously owned, any residential property inside or outside the UK, whether bought or inherited.
The ISA is individual – this means a couple can open an ISA each and save independently. When they come to purchase a property they will EACH receive the Help to Buy benefit towards their deposit.
For more information on the Help to Buy ISA, see our blog post: The Help to Buy ISA
The Lifetime ISA
The new Lifetime ISA was announced in Budget 2016, providing an escalation of the Help to Buy ISA. Launching in April 2017, the Lifetime ISA will follow similar principles to the Help to Buy, boosting savings by 25%, but with the option to save for retirement or a first home. Below are some of the key differences:
Who? – the Help to Buy ISA can be opened by anyone aged 16+ providing they don’t own a home. The Lifetime ISA can be opened by anyone aged 18 – 39.
Savings – the Lifetime ISA lets you save up to £4,000 a year any way you like, with lump sum deposits or a standing order. The Help to Buy requires a monthly standing order of £200/month maximum, only allowing you to save £2,400 per year, except in your first year when you can save an additional £1,000.
The maximum government bonus for Help to Buy is £3,000, whereas the Lifetime ISA can provide a top-up of £32,000 (based on maximum contributions over 32 years).
Home value – the Help to Buy ISA can be used towards a house worth up to £450,000 in London, and £250,000 outside London. The Lifetime ISA abolishes this restriction and can be used for any property up to £400,000 anywhere in the UK.
Show me the money – the top-up is paid annually in the Lifetime ISA, meaning the bonus attracts interest. The ISA can be withdrawn after one year. The Help to Buy ISA can be withdrawn only when £1,600 has been saved. The bonus is paid when you buy a home, so no interest is gained on the bonus.
Which ISA is for you?
Help to Buy ISAs will be transferable into Lifetime ISAs during the 2017-18 tax year, and still be able to save an additional £4,000. As a result, opening a Help to Buy ISA now makes even more sense.
Buying before April 2018? It makes sense to open a Help to Buy ISA, not a Lifetime ISA. You can only withdraw the Lifetime ISA once it’s been open for a year, so after April 2018 at the earliest.
Want a Lifetime ISA? If you’re not a home owner, the best option is to open a Help to Buy ISA. Next year you can transfer the funds into a Lifetime ISA, reaping the Help to Buy benefits whilst you wait, and potentially earning double the bonus in 2017-18.