Try not to miss out on LISA’S deadline
First-time buyers should fill their allowance or risk missing out on free a bonus towards a home
There’s an urgent warning for firsttime buyers. The new tax year starts on 6 April, which means there’s just one month left to fill your Lifetime ISA allowance for this year. Miss the deadline, and you could lose out on a potential free £1,000 bonus towards your first home.
Lifetime ISAS (LISAS) first launched in 2017, and they were a replacement for its Help to Buy ISA predecessor cousin. LISAS are a tax-free savings account which lets you save up to £4,000 per tax year. For a detailed explanation and how it compares to the Help to Buy ISA see my full www.mse.me/lifetimeisa guide, yet in a nutshell…
It’s for first-time buyers… As long as you’ve never owned, or part owned a home (in any way) you can use the money as a deposit for a mortgage towards any residential property that costs up to £450,000.
… or for retirement savings. The money and bonus can also be taken out once you hit age 60.
You get a 25 per cent bonus on everything you put in. For every pound you contribute in a year, the state will add 25 per cent, until you’re 50. So, if you save £1,000, you’ll have £1,250, and if you save the full £4,000, you’ll have £5,000. That means if you fill this year’s now, and you had another £4,000 to save you could put that in on the 6 April – so you’d have £8,000 in by then.
There’ll be a penalty if you withdraw cash for anything else. You can withdraw money whenever you want, but if it’s not for the property – or at retirement – there will be a 25 per cent penalty (remember you’ve already been given a 25 per cent bonus). The maths works out that for every £100 you put in, you get £93.75 back, so only put in money you know you’ll use for a qualifying home buying or retirement.
So, if you want a LISA sort it soon, so you can use this year’s allowance now, and then you get another one on 6 April. Sadly though, LISAS aren’t available to everyone. You must be aged 18 to 39 to open one. Yet as long as you open it the day before you’re 40 you can then continue to use it afterwards.
The bonus is then paid until you’re 50. So open at 18, and get the full 32 years of the maximum bonus and that’s £32,000 free (assuming the rules don’t change).
The other big timing issue is that there’s a rule that says to use the bonus for a home, you need to have had it open for at least a year. So, I’d urge anyone considering it to at the very least put in a £1 now, as that starts the clock ticking, so that if and when you do have money to put in it, and want to buy a house quickly, you’re ready to go. Of course, if you can save more, then do.
The number of providers offering LISAS are limited.
There are two types of LISAS. Cash LISA and Stocks and Shares LISA. There aren’t many top cash LISAS to choose from, as not many providers offer them, but top is app-based www.moneyboxapp.com which pays 1.4 per cent AER followed by the branch and online www.thenottingham.com building society paying 1.25 per cent AER.
You can also open an investment LISA, meaning your money goes into stocks and shares. There are more choices here including the likes of www.hl.co.uk, www.ajbell. co.uk and www.nutmeg.com. Though remember with these you’re taking a risk, and these are far less suitable for those who’ll be using the money within five years.
If you can’t get a LISA, let’s say because you’re too old, then if you opened a Help to Buy ISA before they closed for newapplicationsinnovember last year, you can keep saving in it till November 2029 and use it for the 25 per cent house bonus till December 2030.
If you didn’t open a H2B ISA then it’s a question of just putting your money in the best savings accounts. For regular saving you can put up to £500
LISAS are a tax-free savings account which lets you save up to £4,000 per tax year. It’s for first-time buyers and you can use the money as a deposit for a mortgage … or for retirement savings.
per month in the www.coventrybuildingsociety.co.uk regular saver earning 2.5 per cent AER. Or, for lumps with easy access there’s www.marcus. co.uk and www.saga.co.uk 1.3 per cent AER. Full help in my www.mse.me/topsavings guide.
You can use a LISA for retirement savings, but for most it ain’t such a no brainer.
The LISA versus pension argument is complex and detailed, so I’m only going to scratch the surface here.
If you’re employed, the autoenrolment scheme means most people are automatically saving into a pension, and if you do then your employer has to contribute as well. In this case if you’re saving for retirement, the first thing to aim for is to put enough in your pension that your employer maxes out its contribution.
Plus, money in a pension is saved from gross (pre-tax) income. This means the tax benefit for higher rate taxpayers works out like a 66 per cent boost, smashing the LISA. And for basic rate taxpayers it’s a 25 per cent boost, the same as a LISA.
So, in simple terms the only time the Lifetime ISA even matches pensions is for basicrate taxpayers who are selfemployed. And while the LISA is more flexible, as it allows early withdrawals (for a penalty), this is balanced by the fact the money in a Lifetime ISA, unlike a pension, counts as savings, so it can diminish benefits and other entitlement.
In simple terms the only time the Lifetime ISA even matches pensions is for basicrate taxpayers who are self-employed