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I’ve spoken about ISAs a number of times on this site.
Out of the number of ISAs available to savers, the Help To Buy (H2B) and the Lifetime ISA (LISA) are probably two of the most talked about.
Despite all the noise around its release, the LISA seems to often be overlooked or even completely unknown when I have discussions around house deposit savings with friends and colleagues.
So let’s take a quick look at the the differences and similarities between the two ISAs specifically designed to help people save for their first property.
Note – The H2B is now closed for new customers. If you don’t already have one open, then I am afraid it’s too late as this closed for new applicants last November. If you already have one open, you can continue contributing to it up until 2029.
How much can I contribute?
LISA – Up to £4,000 per tax year up to the age of 39. This can be added all at once, or split over the 12 months of varying despot sizes.
H2B – Up to £12,000 total. You can only deposit up to £200 a month up to the maximum £12K.
When do I receive the 25% bonus?
LISA – 4-6 weeks after depositing the money into the account.
H2B – The bonus is added on completion of the house purchase, so you never actually see the bonus in your account.
What is the money used towards in the purchase process?
LISA – Because the bonus is paid into the account within 4-6 weeks of deposits being made, it can be released at exchange. This money is then used both towards the money you need to give the seller, as well as against the mortgage deposit.
H2B – Against the mortgage deposit to reduce the amount of mortgage you need only.
Can I access it anytime?
LISA – Yes, but you will be charged an early withdrawal fee of 25%. This 25% includes the government bonus, so actual loss of capital is more like 6.25%. This fee applies if you want to withdraw the money for anything other than a first time house deposit or for use towards retirement over the age of 60.
NOTE – this has been temporarily removed by the government over the Covid period, but there are plans to reinstate this soon.
H2B – No, you can access the money at any time without any penalties, but you just won’t receive the bonus.
Can I use it for anything else other than a house?
LISA – Yes. LISAs can also be used as retirement accounts for use over the age of 60. You still have to open one before the age of 40 though.
NOTE – For many this won’t be the most tax efficient way of saving for retirement. Please consider the pros and cons of doing this independently as I won’t be discussing those in this post.
H2B – Yes…kind of. Although these accounts are technically for first time buyers, as the money is accessible at anytime, you can technically use this as a general savings account. You’ll earn interest on the money in the account, but you won’t receive the 25% bonus using it in this way; this is only given when using this account for the purchase of house.
Can me and my partner own and use one towards our house deposit?
LISA – Yes. As long as you are both first time buyers, you can both use a LISA towards one house deposit. These accounts are based on a ‘one per person’ principle, and not ‘one per household’ principle.
If one of you has already owned a home, then you can still use a LISA as long as the other has not and the account is in that person’s name.
H2B – Yes. Exactly the same as the LISA.
What are the limits on the value of the house?
LISA – The value of the property must not exceed £450,000. This applies to both outside and within London.
H2B – The value of the property must not exceed £250,000 outside of London, and must not exceed £450,000 within London.
NOTE – The value of the house limit does NOT double if you and your partner both have a LISA/H2B. The limit is based per property and not per account.
When do I receive the bonus?
LISA – Roughly 4-6 weeks after depositing an amount into your account up to the £4K limit. This is added to the account and you’re able to physically see it in there on top of your contributions. This bonus will also earn interest.
H2B – The bonus is only added at the point of purchasing your first property. So you won’t physically see the bonus in your account like you would the LISA. So this bonus will not earn interest.
Can I invest the money in my account?
LISA – Yes. There is an option to have a Stocks & Shares LISA.
H2B – No. These accounts are held in cash only.
Can I keep my account open even after completing on my first house?
LISA – Yes. but this will be locked until the age of 60.
H2B – Yes. But you will not receive the 25% bonus as this is only given at the point of completing on your first house.
Can I have both?
Yes. But you can only use one per person towards the house deposit.
Additional things to note
- You can open the LISA with as little as £1
- Your LISA must have been opened for a minimum of 12 months before you can use it towards your first house
- You can transfer the money in your H2B to a LISA, but this will count towards your ISA limit
So which should you choose?
Well if you don’t already have a H2B open, you’ve missed the boat and aren’t able to open one now anyway, but for those considering the LISA, and who already have a H2B account, there are two main pros of each account to consider:
LISA – You can contribute more and the bonus is visible and earning interest in your account from 4-6 weeks of depositing, plus the value of your first house can be greater outside of London.
H2B – Gives you greatly flexibility without any penalties for withdrawals if used for anything other than your first time house.
So a number of things to consider here with many pros and cons for both.
I would never recommend one over the other as that will be for you to do your own reach on and decide for yourself based on your individual circumstances.
Remember, the tax year ends on 5th April.