The Lifetime ISA
On 6th April 2017 the Lifetime ISA was finally launched. It is designed to help people purchase a first home or build retirement savings – we will focus on the former for the purpose of this article. The Lifetime ISA allows you to save the interest you earn on cash or investments within the ISA tax free. This scheme is rather similar to the Help to Buy ISA but there are several key differences.
The main difference is that you can now put the funds in your Lifetime ISA, both your savings and the bonus, towards the deposit required on exchange of contracts of a purchase property whereas the Help to Buy ISA bonus is only paid on completion.
Furthermore, you can transfer up to £4,000 per year into the Lifetime ISA whereas you are only allowed to transfer £2,400 per year into the Help to Buy ISA. The Lifetime ISA will also allow you to put in lump sums, up to your annual limit, instead of the £200 per month allowed into the Help to Buy ISA. With the Lifetime ISA, you claim a bonus of up to £32,000. However, in order to do this, you would have to transfer in the maximum annual contribution for 32 years and so this “maximum bonus” may not be achievable for most of us. Essentially, for every £4 saved, the government will add £1. When compared over a five year period, the Lifetime ISA could earn you a £5,000 bonus whereas the Help to Buy ISA would earn you just a £3,000 bonus.
Another important improvement is that the maximum purchase price of the property allowed to be bought using the Lifetime ISA has increased to £450,000 from the £250,000 maximum allowed under the Help to Buy ISA scheme. The Help to Buy ISA’s £250,000 maximum purchase price seems rather ‘frugal’ in light of the housing prices across Cheshire and Greater Manchester. This makes the Lifetime ISA a more attractive product for people intending to purchase a property in this area. You will have to buy your home with a mortgage and use either a Solicitor or a Licenced Conveyancer in order to avoid any withdrawal charge.
To open a Lifetime ISA, you must be aged between 18 and 39 and be either a resident in the UK, a Crown Servant or the spouse or civil partner of a Crown Servant. Please note that you will need to have your Lifetime ISA open for a minimum of 12 months before purchasing your home. Lifetime ISA providers may also set their own conditions on using their products so you should contact them for more information.
What if you already have a Help to Buy ISA? You can open a Lifetime ISA and save into both but you will only be able to use the bonus from one of them to purchase your first home. Alternatively, you can transfer your account into a new Lifetime ISA product.
All in all, the Lifetime ISA should be considered a great tool to help you purchase your first home. However the stringent requirements of this new scheme may mean that the Help to Buy ISA could be the preferred option in some situations, such as if you are aged between 16 and 18 or over 40, or you are planning to buy a property within the next 12 months.
If you would like any additional information on how a Lifetime ISA or Help to Buy ISA can be used to help you purchase your first home, or if you would like a quote for our conveyancing services and an estimate of the likely disbursements that will be incurred, please contact our experienced conveyancing team on 0161 928 3201 or at email@example.com.