More Isa savers face los­ing their £1,000 bonus

The Daily Telegraph - Your Money - - OPINION -

Savers who open a new Life­time Isa when it’s launched on April 6 could lose up to £1,900 in bonuses from the Gov­ern­ment if they are not ex­tremely care­ful. The Life­time Isa al­lows in­di­vid­u­als to save for re­tire­ment or to buy their first home. They can put up to £4,000 a year into the Isa and re­ceive a 25pc gov­ern­ment top-up on the money.

While the bonus is paid monthly af­ter the first year, for tech­ni­cal rea­sons it must be paid an­nu­ally in that first year.

This means savers who in­vest the max­i­mum £4,000 in the first year and then buy a house be­fore that 12-month bonus ar­rives will lose the £1,000.

What’s more, ex­ist­ing savers us­ing the Help to Buy Isa are be­ing en­cour­aged to trans­fer that money into the Life­time Isa in the first year. If savers trans­fer within the first 12 months the Help to Buy money does not count to­wards their an­nual Life­time Isa sav­ings limit. Any Help to Buy trans­fers af­ter the first year will count to­wards the £4,000 an­nual cap.

How­ever, savers who trans­fer their Help to Buy Isa money will also not re­ceive the bonus if they buy a prop­erty in the first 12 months, the Trea­sury has con­firmed.

In­stead, they will have to go back to their Help to Buy Isa provider to re­quest the bonus, creat­ing a com­plex web of ad­min­is­tra­tion.

Those who had saved £4,000 into a Life­time Isa but bought a prop­erty in the first year would miss out on £1,000 of gov­ern­ment money, while those who had the max­i­mum £3,600 saved in a Help to Buy Isa, trans­ferred it to their Life­time Isa and were not aware of the need to re­claim their bonus would stand to lose an­other £900.

Danny Cox of Har­g­reaves Lans­down, the in­vest­ment firm, said: “You’ve got to be a for­tune-teller to make sure you get it right. It is re­ally im­por­tant to think about these things care­fully and plan ahead.

“If you plan to buy a prop­erty in the first 12 months from the Life­time Isa launch you are bet­ter leav­ing the Help to Buy Isa money where it is.”

He ad­vised savers who are un­sure about when they are go­ing to buy a prop­erty to wait un­til near the end of the 2016-17 tax year to trans­fer their Help to Buy Isa money.

The Life­time Isa has al­ready been crit­i­cised by the sav­ings in­dus­try. Savers can with­draw their money penalty-free if they are buy­ing their first prop­erty, are aged at least 60 or in the case of ter­mi­nal ill­ness.

How­ever, if they take money out at any other time they face a 25pc exit charge.

The penalty has been crit­i­cised as a tax on in­vest­ment growth as the 25pc ap­plies to the whole value of the pot at the time of with­drawal. This means the Gov­ern­ment could take back more than it ini­tially con­trib­uted.

The flaws with the Life­time Isa are akin to those of the Help to Buy Isa, where home buy­ers dis­cov­ered that they could not use the bonus at ex­change of con­tracts.

Buy­ers of shared-own­er­ship prop­er­ties, who in­cluded read­ers

Com­plex­i­ties in the rules mean that some savers could lose their top-up. Laura Suter ex­plains

such as Kamil Price-La­torre and Laura Gar­diner, have also been caught out when it tran­spired that many could not get the bonus for their home pur­chase if the to­tal value of the prop­erty ex­ceeded the scheme’s lim­its.

This ap­plies even if the chunk of the home be­ing pur­chased falls within the price cap, which is £250,000, or £450,000 in Lon­don.

Ja­son Hol­lands of Til­ney Bestin­vest, the in­vest­ment com­pany, said many providers might not be able to of­fer the Life­time Isa at the time of launch.

Fund shop The Share Cen­tre is the only provider to have con­firmed it will of­fer the prod­uct on April 6, al­though ac­knowl­edged “there is lots to get right with Life­time Isa”.

Na­tion­wide is the big­gest Isa provider to an­nounce that it will not of­fer the Life­time Isa, say­ing the exit charges are ex­ces­sive.

Laura Gar­diner and Kamil Price- La­torre were caught by Help to Buy Isa er­rors

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