Should I keep my Help to Buy ISA or transfer to a Lifetime ISA?

13 July 2021 | Posted by Frankie Jones
Cotwolds style house

There are benefits to both the Help to Buy ISA and the Lifetime ISA, so whether you stick or switch depends on which of the advantages will work in your favour.

What is a Help to Buy ISA?

A Help to Buy ISA is a type of Individual Savings Account. It’s a tax-free way to save up to buy your first home.

You can pay in up to £200 each month, and the government will top up your savings by 25% (up to £3,000) when you buy your first home.

It’s worth noting that you can no longer open a Help to Buy ISA as the government has discontinued them. If you already have one, you can keep paying into the ISA until November 2029, and you can claim the 25% bonus until November 2030.

What is a Lifetime ISA?

A Lifetime ISA (LISA) is a tax-free way to save for your first home or for retirement. 

You can put in up to £4,000 each year until you’re 50 years old (you must make your first payment before you turn 40 though). The government will then add a 25% bonus to your savings, up to a maximum of £1,000 per year.

Learn more about the LISA here.

Should you make the transfer?

Both schemes offer you a 25% bonus on savings towards your first home, but there are some key differences to factor in if you’re considering a transfer.

The main advantage of the LISA is that you can make more money than you could with a Help to Buy ISA. The total maximum bonus with a Help to Buy ISA is £3,000, whereas you could make up to £33,000 with a LISA. The bonus is paid into a LISA on a monthly basis, whereas the bonus is only paid at point of purchase in a Help to Buy ISA. This means your bonus in the LISA can benefit from interest and investment returns, too.

You can also buy a property that’s worth more money with a LISA. Outside London, you can only buy a home worth up to £250,000 with a Help to Buy ISA, or up to £450,000 with a LISA.

It’s also worth mentioning that you can open a cash LISA or a stocks and shares LISA, or both. Whereas Help to Buy ISAs are only available in cash form.

But that might not be reason enough to transfer. There are a few circumstances in which you might want to stick with what you’ve got.

You might want to stick with Help to Buy if:

  1. You want to buy your home within a year – You have to have had your LISA open for at least a year before you buy.
  2. You’re more than 40 years old – You must be between 18 and 39 to open a LISA.
  3. You’re not sure you’ll be purchasing a qualifying home – With a LISA, if you withdraw your money before you’re 60 or for any reason other than buying your first home, there’s a 25% government charge. With a Help to Buy ISA, you can withdraw your money at any time, even if you’re not buying a property. There are no government charges for withdrawing but you won’t be paid the bonus.
  4. You have over £5,600 saved in your Help to Buy already – The maximum you can put into a LISA is £4,000 a year, so you may not get a bigger bonus.
  5. You want to take advantage of higher interest rates – LISA interest rates tend to be lower than Help to Buy ISA rates.

Decided you want to transfer to a LISA? Here’s how to do it

If you don’t have one already, browse this list of the top LISAs (you can compare by account type, interest rate and notice). Once you’ve found the right one for you, simply open an account and ask to transfer your existing Help to Buy savings over.

If you already have a LISA, just get in touch with your provider and ask to make a transfer.

Bear in mind that if you have more than £4,000 sat in your Help to Buy ISA, you can transfer £4,000 now and you’ll need to wait til the next tax year to transfer the rest of it.

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