Lifetime ISAs

Last updated: March 2021 | 2 min read

If you plan ahead when it comes to buying a home, you can solve through many issues which may otherwise cause a delay.

What is Lifetime ISA?

A lifetime ISA (LISA) is a type of an account which is designed to encourage people to save money for their first home or for their retirement.

  • You can save up to £4,000 a year
  • The government will provide a 25% bonus, paid monthly
  • You will earn interest on the government bonus
  • You need to be between the ages of 18 – 40 to open an account
  • The savings can be used for paying a deposit on your first home
  • You need to have an account for at least a month for you to qualify for the government bonus

What are the advantages of Lifetime ISA?

  • Bonus – You can earn a maximum bonus of up to £32,000
  • Interest on bonus – As the government bonus is earned annually, you can earn interest on this amount as well as your own saving.
  • New home – you can use the savings to buy any home worth up to £450,000 or use it towards pension income.
  • Pay in a lump sum – You can pay lump sums instead of monthly payments.

What are the disadvantages of Lifetime ISA?

You cannot take out a Lifetime ISA if you are aged 40 or above.

Further, if you want to withdraw from the savings and still receive the bonus is one year. Additionally, you will incur a penalty if you withdraw from the saving for any reason other than buying a home, reaching the age of 60, or are diagnosed with a severe terminal illness.

What is Help to Buy ISA?

The Individual Savings Account was a governmental scheme which was first introduced in 2015. It was designed to help first-time buyers for saving for a deposit. It would allow individuals to invest up to a fixed amount each year and receive interest without having to pay any tax.

However, Help to Buy ISAs are not available any longer. If you got a Help to Buy ISA before they closed down to new applicants, then read on:

  • There is no minimum monthly deposit requirement, and you can save up to £200 each month.
  • In order to get the bonus, you should have saved £1600 at least.
  • You can receive a maximum bonus of £3000.
  • Shop around for the best account as you will be earning interest on the savings.
  • You do not earn interest on the government bonus because that amount can only be accessed when you want to purchase a home.
  • If you already have an account, you have only till December 2030 to apply for the bonus.

Click here if you want more information on Help to Buy ISA.

How does Help to Buy ISA work?

Each person can have one Help to Buy ISA. The account can hold up to £12,000. When you come to buy a home, you could receive a bonus from the government up to £3,000.

However, the cost of the home must not exceed £250,000. If the property is in London, then the limit is £450,000. Further, though you can use the bonus on older homes and new builds, you cannot use the bonus to purchase a buy to let.

Additionally, a Help to Buy ISA cannot be used for retirement savings either.

You should also note that with Help to Buy ISA you cannot use the government bonus towards paying for the deposit. Since the bonus is not even accessible until after the sale has been completed.

Can you transfer a Help to Buy ISA into a Lifetime ISA?

You are allowed to an account under both schemes at any one time. However, you can only use government bonus via one account when purchasing a home.

You can also transfer a Help to Buy ISA into a Lifetime ISA. However, you should be aware that any amount you transfer will be subject to the £4,000 yearly limit.

Click here to learn about other affordable home ownership government schemes to help you buy a home.

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