Saving into a Help to Buy ISA or Lifetime ISA?

If you’re looking to make the most of your savings, you might be interested in knowing the difference between a Lifetime ISA and a Help to Buy ISA. Lifetime ISAs are available now, but the Help to Buy ISA closed to new applicants on 30 November 2019. If you opened your Help to Buy ISA before then you can keep saving into your account although you must have claimed your bonus by 1 December 2030. In this guide, we break down the pros and cons of saving into a Lifetime ISA and a Help to Buy ISA.

What’s the difference between a Help to Buy ISA and a Lifetime ISA?

Help to Buy ISA

You can no longer open a new Help to Buy ISA. If you already have one you can save into your Help to Buy ISA until 30 November 2029, with a further 12 months to claim your bonus until 1 December 2030.

Quick facts:

  • Designed for first-time buyers who are aged over 16 and are looking to save up a deposit for their home.
  • The government adds 25% to your savings, for a maximum bonus of £3,000.
  • You can use it to buy a home worth up to £250,000, or up to £450,000 in London.
  • The bonus is paid on buying a home and funds are available on completion.
  • If withdrawing for any reason other than buying your first home, there are no government charges but also no bonus is paid.

Lifetime ISA

This type of ISA has been available since 6 April 2017.

Quick facts:

  • Designed to help people aged between 18 and 40 save up for their first home, or retirement.
  • The government will give you a bonus worth 25% of what you pay in, up to a maximum of £4,000 per year.
  • You can use it to buy a home worth up to £450,000 anywhere in the country.
  • The bonus is paid monthly and funds are available on exchange.
  • There’s a 25% government charge if you withdraw before aged 60 for any reason other than buying your first home. This has been reduced temporarily to 20%, taking effect from 6 March 2020 until 5 April 2021, as part of the government’s coronavirus measures.
Find out more in A guide to Lifetime ISAs.

Which one should I use?

If you have both a Help to Buy ISA and a Lifetime ISA, then you can continue to save into both accounts. Be aware that you will only be able to claim one bonus towards the purchase of your first home.

Both are designed to help you buy your first home and give you a 25% bonus on your savings subject to certain limits.

The main difference is that you can save £4,000 a year in a Lifetime ISA, compared with £2,400 (£3,400 in year one) in a Help to Buy ISA. This could mean a much bigger and quicker bonus when compared to a Help to Buy ISA. Although the Help to Buy ISA does provide a more flexible approach to saving.

One of the other main differences is how and when the bonus is paid.

The Lifetime ISA’s bonus is paid monthly so can be used towards any deposit requirements on exchange of contracts (England, Wales and Northern Ireland).

The bonus on the Help to Buy ISA however needs to be claimed between exchange and completion. This means any bonus will contribute towards your overall or mortgage deposit and therefore can’t be used at exchange.

In Scotland, your acting solicitor will apply for the Help to Buy ISA Bonus from the Government on your behalf when you have found a property.

The main drawbacks of the Lifetime ISA are that you will need to wait at least a year to claim your bonus.

If you draw the money out before the age of 60 for anything other than buying your first property you will have to pay a government penalty of 25% - reduced to 20% until 5 April 2020 - which could mean you receiving less back than you put in.

Can I transfer money between these ISA accounts?

Yes, you can still transfer your Help to Buy ISA from your current provider. You will need to check that the bank, building society or credit union you are looking to move to offers the Help to Buy ISA and accepts transfers in.

Will I still be able to transfer my Cash ISA or other ISA to my Help to Buy ISA?

Yes, you can still transfer your funds into your Help to Buy ISA from another type of ISA subject to your Help to Buy ISA monthly deposit limits and the terms and conditions of your other ISA. Transferring from a Lifetime ISA could result in a government penalty on your savings.

When will I get my bonus?

The Help to Buy ISA will pay out a maximum bonus of £400 after just three months once you’ve got £1,600 in total - you’ll need to put in the maximum amount of £1,200 in month one, and £200 in month two and three.

What if I’m over 40?

If you’re over 40 or below the age of 18, you’re not eligible for a Lifetime ISA, even if you’re a first-time buyer.

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