Help to Buy Isa or Lifetime Isa… Where is best for your nest egg?


It’s not often the Government gives away free cash, but in the past five years aspiring homeowners have been offered two opportunities to earn generous bonuses on their tax-free savings. 

Soaring house prices mean, for many, it will take years to save for a deposit – so it’s little wonder the Government launched the Help to Buy Isa in December 2015 exclusively for first-time buyers. 

Anyone over 16 could open one and earn a 25 per cent government bonus on savings up to £12,000. 

Soaring house prices mean, for many, it will take years to save for a deposit – so it’s little wonder the Government launched the Help to Buy Isa exclusively for first-time buyers

You can save a maximum of £200 a month, plus an extra £1,200 in the first month. Less than two years later came the Lifetime Isa. 

It’s another bonus account to help people save for their first home, but can also be used to save for retirement. 

It’s too late to open a Help to Buy Isa now, as they were taken off the shelves on November 30 last year. 

But if you have one already, should you switch your savings to a Lifetime Isa instead? 

Patrick Connolly, chartered financial planner at independent financial advisers Chase de Vere, says: ‘When comparing these accounts, the starting point is that the Lifetime Isa is superior. 

‘You can put more money into it, you can earn a bonus for a house deposit or retirement, and you have more choice over how you invest.’ 

If you can afford to save more than £200 a month, then the Help to Buy monthly restriction could be holding you back. 

The £4,000 annual Lifetime Isa allowance equates to £333 a month, and you can put the money in when it suits you throughout the tax year. 

By contrast, Help to Buy savers who don’t save for one month, for example, would lose their £200 allowance as it cannot be carried forward. 

The higher Lifetime Isa limit also means more free cash from the Government, making it quicker to save for a deposit on a house. 

If you save £4,000 a year into an ordinary savings account, it will take you 12 years and six months to get together a £50,000 deposit, according to analysis by investment broker AJ Bell. 

By using a Help to Buy Isa, saving the same £4,000 a year (using a normal savings account after maximising the Isa limits) would mean you reach your £50,000 goal in just under 12 years. 

You would have put away £3,000 of bonus money, too. It would take a couple with two Isas six years, plus they would benefit from a £6,000 bonus. 

But if you use a Lifetime Isa, you will get to £50,000 in ten years — pocketing £10,000 in bonus cash. 

It would take a couple around five years to save the same amount, with a combined bonus of £10,000. 

If you don’t mind taking some risk with your cash, switching to a Lifetime Isa gives you the option not only to choose a traditional savings account, such as the Help to Buy Isa, but you can also invest in the stock market. 

Charles Cockman, 36, initially opened a Barclays Help to Buy Isa when the account first launched. The interest rate was higher than instant access cash Isas and he felt £200 a month was a realistic savings goal. 

‘Buying a house was on my radar, but I had no imminent plans,’ says the analyst from Manchester. 

So when the Lifetime Isa launched, offering the same bonus to first time buyers with the option to invest in the stock market, Charles decided to switch. 

He opened a Lifetime Isa in June 2017 with just £1. Savers who opened a Lifetime Isa in the first year could transfer in a balance from another Isa without using up their £4,000 allowance and earn the 25 per cent government bonus on the total amount. 

Charles transferred £3,172 in from his Help to Buy Isa and saved £3,902 of his own money, earning him a £ 1,769 bonus in 2017/2018. 

Saving the maximum contributions each tax year ever since, he’s earned a further £3,902 in bonuses, taking his balance to £18,843. 

The £1,696 he earned from having his cash invested in shares takes his total balance to £20,539. 

House-hunters using a Help to Buy Isa can buy a home worth up to £450,000 in London, but £250,000 anywhere else. 

Lifetime Isa savers can buy a home up to £450,000 anywhere in the country. If you take your money out of the Lifetime Isa for any other reason than to buy a house, after you have turned 60 or if you have a terminal illness, you will lose your bonus and 6.25 per cent of your savings. 

Help to Buy savers just lose the bonus. The Lifetime Isa is open only to those aged 18 to 39. 

If you are buying a house soon, it would be sensible to stick with your Help to Buy account, since you cannot use the money in a Lifetime Isa to buy a house in the first 12 months. 

But with a Help to Buy, you will need access to separate savings to pay your house deposit, survey and solicitor’s fee, because the Government bonus is not released until after you have bought your home.

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