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Help To Buy ISA vs Lifetime ISA

Posted on 17 December 2018 by Laura Godfrey

Help To Buy ISA vs Lifetime ISA

For those people saving for their first home there are two options available for ISA’s to help save for a deposit:

  • Help to Buy ISA - launched in December 2015 but the scheme is due to close to new business on 30 November 2019
  • Lifetime ISA - launched in April 2017

There are several differences between the two products and which account is better for you will depend on your personal circumstances.

1. How much can you save?
You can save up to £4,000 in a Lifetime ISA each tax year and you’ll receive a 25% bonus from the government on top of what you save, up to a maximum £1,000. You can deposit up to £4,000 in a lump sum or make multiple payments across the year.
The Help to Buy ISA is more limited. You can deposit £200 per month (£2,400 per year), plus an additional £1,000 in the first month but no lump sum payments can be made. You can save a maximum of £12,000 in total which would generate a bonus payment of £3,000. To receive the maximum £3,000 bonus you'll need to save for over four years. 

2. Who can open an account?
The Lifetime ISA can be opened by people aged between 18 and 39 (but you’re not allowed to have owned a property before if you wish to use the bonus to buy your first home). You can still open a Lifetime ISA if you have owned a property before and intend to use the ISA to save for retirement (rather than to buy your first home).
People aged 16 or over can open a Help to Buy ISA, but you’re not allowed to open an account if you own, or have previously owned, a property. The Help to Buy ISA is due to close to new customers on 30 November 2019. After that date only existing customers will be able to pay into their accounts.

3. What can I use it for?
A Lifetime ISA can be used to save towards your retirement or buying your first home.
On the other hand, the Help to Buy ISA must be used to purchase a home.

4. Can you use the bonus towards your deposit on Exchange of Contracts?
With a Lifetime ISA, the bonus is paid into your account on a monthly basis (so you get interest on the bonus once it’s paid) meaning any bonus received so far can be used towards your deposit on Exchange of Contracts.
However, with a Help to Buy ISA the bonus is paid to your conveyancer when your house purchase is completed, so it cannot be used towards the deposit on Exchange of Contracts (and there is no interest on the bonus).

5. When can you use it to buy your first home?
A Lifetime ISA must be open for a year before it can be used.
You can use your Help to Buy ISA at any time but you'll need to save at least £1,600 (3 months of saving) in order to receive the bonus.

6. Are there restrictions regarding the house price?
The Lifetime ISA limit is set at £450,000 for property purchases regardless of location.
The Help to Buy ISA limits property purchases to £250,000 or less, although this rises to £450,000 if the property is in London.

7. Can you withdraw your money if your not buying a home?
If you choose to withdraw cash from the Help to Buy ISA you’ll face no penalty; you just don’t get the bonus.
However, withdrawals from a Lifetime ISA are subject to a penalty and you’ll lose the government bonus. Alternatively, if you choose to buy a home outside of the scheme you can still keep the cash in the Lifetime ISA until you retire.

It's worth pointing out….

  • You can have one of each account, but you can only use the bonus from one account to buy your first home.
  • If you're buying a first home with a partner, both of you can have a Help to Buy and/or Lifetime ISA to benefit from double the bonus.
  • Existing Help to Buy ISA customers can transfer their funds, up to £4,000, into a Lifetime ISA at any time.

Our conveyancers at Pardoes are experienced in dealing with both Help to Buy ISAs and Lifetime ISAs. Therefore, if you have any queries then please feel free to contact anyone of our conveyancers in each of our fours office to discuss.

Posted in: Buying & Selling Your Home