Time is running out for Help to Buy Isa savers to more than double their bonus by transferring their cash to a Lifetime Isa.
First-time buyers earn an extra £1,100 from the government by transferring their balances before April – but some providers have set a deadline as early as 1 March.
Which? explains what you need to know about Isa bonuses and whether they’re the right move for you.
How the Help to Buy Isa transfer boost works
Savers who switch to a Lifetime Isa before April 2018 can benefit from special rules.
Under these rules, the money saved in a Help to Buy Isa before the 5 April 2017 can be transferred to a Lifetime Isa without it impacting on the annual contribution limit of £4,000 (for the tax year 2017/18).
If you maxed out your deposits into a Help to Buy Isa since its launch in December 2015, you will now have a total of £4,400 saved.
By moving this balance into a cash or stocks and shares Lifetime Isa, and combining it with the normal allowance of £4,000, you could achieve a pot of £8,400.
The government pays a 25% bonus on contributions to Lifetime Isa accounts – so for the 2017/2018 tax year, you could earn a bonus of £2,100, rather than the usual maximum of £1,000.
Deadline for transferring your Help to Buy Isa into a Lifetime Isa
The deadline for transferring from a Help to Buy Isa to a Lifetime Isa is midnight on 5 April 2018 – but you may not have that long.
As the transfer needs to be completed by the end of the tax year, some providers are setting earlier deadlines for applications.
Skipton Building Society, the only provider of a cash Lifetime Isa, says savers must apply for a transfer by 1 March for it to be processed in time to earn the bonus.
Stocks and shares Lifetime Isa providers are also warning that savers will need to start the process well in advance of the 5 April deadline.
Hargreaves Lansdown has set its application deadline at 6 March, while AJ Bell says savers should start as soon as possible to avoid disappointment.
Nutmeg has said it won’t accept transfers at all.
Can you still transfer a Help to Buy Isa after 5 April 2018?
If you miss the deadline to complete your transfer, you will still be able to move cash from a Help to Buy Isa into a Lifetime Isa.
However, the amount you transfer in will deplete your overall Lifetime Isa allowance for 2018/19.
Benefits of the Lifetime Isa
Both the Help to Buy Isa and the Lifetime Isa (LISA) offer a Government bonus of 25% on the amount you save. But the LISA offers some better long-term benefits.
- LISAs offer a bigger bonus. You can pay £200 a month into a Help to Buy Isa (after an initial £1,200 deposit) and only get a maximum bonus of £3,000. LISAs allow you to save up to £4,000 a year until the age of 50 – and you get a 25% bonus on your contributions. This means if you open one at 18 and contribute the maximum until the age of 50, you could earn bonuses of up to £33,000.
- LISAs are more flexible. While Help to Buy Isas have a £200 monthly savings limit which you can’t roll over, you can deposit a maximum of £4,000 a year into a LISA at any point during the year.
- LISAs offer more investment choices. With a Help to Buy Isa, you can only invest in cash. The LISA, however, allows you to invest in both cash and stocks and shares.
- LISA bonuses can be used on an exchange deposit. The Help to Buy Isa bonus is paid through your solicitor on completion, but LISA bonuses can be used for any deposit required on the exchange of contracts.
- LISAs can be used for more expensive homes. Help to Buy Isa bonuses can only be used on homes worth up to £250,000 (or £450,000 in London), while the LISA can be used on properties priced up to £450,000.
- LISAs have a longer shelf life. Help to Buy Isas will only be available until November 2019 and must be used by December 2030.
Three reasons to keep a Help to Buy Isa
Despite its long list of benefits the Lifetime Isa may not be for everyone. Here are three reasons to keep your Help to buy Isa.
- You don’t qualify for the LISA. Lifetime Isas are only available to those aged 18 to 39, so you may want to keep your Help to Buy Isa if you are too young or old for the new scheme.
- You’re planning on buying a home soon. You cannot redeem your bonus until you’ve had a LISA for a year, so anyone planning to buy a property in the next year will probably be better off leaving their cash in a Help to Buy Isa.
- You’re not sure what you want to do with the cash. With a LISA, you’ll pay a 25% penalty to withdraw cash or assets, unless you’re buying your first home, aged over 60, or terminally ill. So you could pay a big penalty if you change your mind. With a Help to Buy Isa account, you can withdraw your cash at any time – you just won’t receive the bonus if the funds don’t go towards purchasing your first home.