Help to Buy vs Lifetime ISAs

Help to Buy or Lifetime ISA? You might be considering both. Here, we’ll break them down and make the ISAs a little easier to understand so you can make a decision that suits your finances.

Help to Buy or Lifetime ISA? You might be considering both. Here, we’ll break them down and make the ISAs a little easier to understand so you can make a decision that suits your finances.

Anelda Knoesen
From the Money team
7
minute read
Do you know someone who could benefit from this article?
Posted 31 AUGUST 2021

What is the difference between a Help to Buy ISA and a Lifetime ISA?

Although they seem similar, Help to Buy (H2B) ISAs and Lifetime ISAs (LISAs) have some key differences.

Help to Buy ISAs are designed for first time home buyers aged over 16, while Lifetime ISAs are open to to adults aged between 18 and 40 to help them save for a first home or for their retirement.

Although Help to Buy ISAs closed to new applicants on 30 November 2019, you can still save into the ISA until 30 November 2029 and should be able to transfer funds in from another ISA.

Here’s a rough idea of how they compare.

 

Help to Buy ISA

Lifetime ISA

Age limit

16+ (not open to new applicants)

18 to 40

(Unable to pay into ISA from age 50)

First-time buyers

Retirement

x

Can help to buy homes costing

Up to £250,000 or £450,000 in London)

Up to £450,000 anywhere in the country

Maximum bonus percentage

25%

25%

Maximum bonus amount

£3,000 in total

£1,000 per year (if you save the maximum £4,000 per year)

When is the bonus paid

When buying a home

Monthly

Funds available

On completion

On exchange of contracts

Charges

None

25% charge if you withdraw before age 60, or for any reason other than buying your first home

Which one is best for me?

That depends on your circumstances. You now can’t open a new Help to Buy ISA, but you can continue paying into an existing one until November 2029. So, if you are eligible and want to open a new ISA, you’ll only be able to get a Lifetime ISA.

If you already have a Help to Buy ISA, you can also get a Lifetime ISA and save into both accounts, if you wish. You’ll have to stick to the overall ISA limits as set by the government, but currently (in tax year 2021-22) you could pay the maximum into both each year and still be under the limit. But you should know you’ll only be able to claim one bonus towards the purchase of your first home. You can use your Lifetime ISA to save for retirement as well as for a house purchase, but if you have both and use your LISA for your house purchase, you won’t be able to claim the Help to Buy ISA bonus of £3,000.

Lifetime ISAs will help you to buy a more expensive home outside London. The limit is much higher at £450,000, compared to a £250,000 limit with a Help to Buy ISA. The limit for London properties is the same for both.

You’ll be charged 25% on any money that you withdraw before you turn 60 or when not buying a first home with a Lifetime ISA. Essentially, this is the government reclaiming any bonus already paid and a bit extra.

You can withdraw from the Help to Buy ISA without charge. However, your bonus will not be paid on the money you withdraw.

The biggest difference between the two types is that you can save £4,000 a year in a Lifetime ISA, compared with £2,400 in a Help to Buy ISA, with a potentially bigger bonus. If you can save this amount every year, it could put you on track for a bigger and quicker bonus when compared to a Help to Buy ISA. On the plus side for the Help to Buy ISA, it does provide a more flexible approach to saving.

What if I want to invest?

A Stocks and Shares ISA allows you to invest in funds or buy your own shares without having to pay income tax or capital-gains tax on money you earn from your investment. Think of it as a tax-efficient investment account.

You can hold stocks and shares or cash, or a mix of both, in a Lifetime ISA. And you can transfer funds from a stocks and shares ISA into a Help to Buy ISA, provided you don’t exceed your monthly deposit limits. You can also have a separate stocks and shares or cash ISA, so long as the total value of your savings doesn’t exceed the limit for the tax year.

The savings limit for the 2021-2022 tax year is £20,000.

But remember, particularly if you are planning on buying a home with what’s in your ISA, the value of stocks and shares can go up and down and shares are generally thought of as a long-term investment. It could be a risk to invest in stocks and shares if you are planning on buying around a particular future date, as if there was a stock-market crash or correction, you might need to take your money out at an inopportune time. Financial advisors typically recommend holding stocks and shares for around five to 10 years. However, this is much less of an issue if you’re using the Lifetime ISA to save for a pension. If there’s a drop in the market, there would still be plenty of time for your investments to recover in value before retirement.

With a stocks and shares ISA, you wouldn’t be guaranteed to get out what you put in – you could lose all or some of your money. If you are thinking of investing in stocks and shares and aren’t sure if it’s the right thing for you, then it is probably a good idea to speak to an independent financial advisor to make sure you are happy with the potential level of risk with your money.

Which ISA is best if I live outside of London?

If you’re planning on buying your first home outside of London, you might be better off with a Lifetime ISA.

The LISA savings accounts can help you buy a first home worth up to £450,000 anywhere in the country and could give you a maximum bonus of £1,000 a year – provided that you save the maximum £4,000 per year – and can afford the deposit and mortgage on the property.

The maximum bonus possible in total on a Help to Buy ISA is £3,000. So, if you’re likely to be saving for four years or more for your home outside London, a LISA could make your money work harder for you with a larger potential bonus if you can pay in the maximum every year.

Help to Buy ISAs are also more restricted and can only help people buy homes worth up to £250,000 outside of London.

Are there any age limits I should consider?

Help to Buy ISAs were open to anyone aged over 16. Lifetime ISAs however, can only be opened by adults aged 18 to 40.

There are other age limits to consider for Lifetime ISAs, for example:

  • You can only pay into the savings accounts until the age of 50
  • You’ll be charged 25% of your savings if you take money out before turning 60 (unless it’s to pay for a first home)

Can I have both?

Yes. You can save money in four different types of ISA, so long as you don’t exceed the current ISA savings limit. Types of ISA include:

If you have both a Help to Buy ISA and Lifetime ISA, you’ll only be able to claim one bonus towards the cost of a new home.

Can I transfer money between the two types of ISA?

Not only can you transfer money between a Help to Buy and Lifetime ISA, but you can also transfer savings from one provider to another.

There are a few things to bear in mind:

  • If you want to transfer money that you’ve invested into an ISA during the current tax year, you’ll have to transfer all of it
  • If you want to transfer money from a Lifetime ISA before the age of 60, you’ll have to pay a 25% withdrawal fee (unless it’s to pay for a first home).

When is the Help to Buy ISA bonus paid?

The 25% bonus on a Help to Buy ISA is paid when buying a home, with funds made available on completion.

You can save into a Help to Buy ISA until 30 November 2029 and claim your bonus as late as November 2030.

When is the LISA bonus paid?

Lifetime ISA or LISA bonuses are paid every month, with the maximum bonus you can earn during a tax year being £1,000.

The funds become available on exchange of contracts on purchase.

When should I keep my Help to Buy ISA?

Holding on to a Help to Buy ISA is a good option if you’re going to save a maximum of £12,000 over the course of the ISA. That way you can receive the maximum bonus of £3,000. If you plan on saving more money or to saving for more than three years, you could get a larger bonus from a LISA paying £1,000 a year.

Help to Buy ISAs could also be a good option if you’ll need to take money out when you’re not buying a first home. For example, if someone has £1,000 in a Help to Buy ISA and wants to withdraw all of their funds, they’ll receive £1,000 without the 25% bonus. If someone has £1,000 in a Lifetime ISA and wants to withdraw all of their money, they’d pay a 25% fee and end up with £750.

It’s important that you weigh up your options first and think about your circumstances before you make a decision.

Ready to compare savings accounts?

Compare now
Compare savings accounts quickly and easily Get a quote