Property & MoneyRobert Nicholas Financial Advisers

Do you know your ISAs?

Individual Savings Accounts (ISAs) were introduced in April 1999 to replace PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Accounts). We love our acronyms!

ISAs are tax efficient in that they are exempt from income tax and capital gains tax on the investment returns and no tax is payable on money withdrawn.

Initially there were 3 types available, namely, Stocks & Shares ISAs, Cash ISAs and Insurance ISAs. Most people chose either a Cash ISA or a Stocks and Shares ISA.

There have been many changes in ISAs and their investment limits since they were introduced and there are now even more types of ISA available:

  • Cash ISA
  • Stocks and Shares ISA
  • Innovative Finance ISA
  • Help to Buy ISA
  • Lifetime ISA
  • Junior ISA

Unfortunately, ISAs are not simple as there are different limits and terms and conditions on each and there isn’t enough space to cover all of these in one article.

Therefore, in this issue I am going to concentrate on the Help to Buy ISA and the Lifetime ISA.

The Help to Buy ISA is, surprise, surprise, designed to assist first-time buyers save towards the purchase of a house. You must be a first-time buyer and 16 or over to open one of these.

The Lifetime ISA (LISA) is designed to help first-time buyers save for a house or anyone, save for later life (after 60). You must be 18 or over and under 40 to open a LISA.

The maximum monthly contribution to a Help to Buy ISA is £200pm (plus up to a £1,000 initial lump sum to open the account with). The maximum amount you can get a bonus on is £12,000. You can open one any time until December 2019 and you’ll be able to save in it until December 2029. The bonus will be added if you use it for a deposit by December 2030.

The maximum contribution to a LISA is £4,000 per year from age 18 to age 49.

With both, the government will pay a bonus of 25% of your contributions. With a LISA the bonus is paid monthly, with a Help to Buy ISA the bonus is paid on completion of the purchase of a home.

If you paid the maximum contributions allowed, the maximum bonus on a Help to Buy ISA would be £3,000 whereas on a LISA it would be £33,000.

With both types, you can withdraw your money out at any time. However, if a Help to Buy ISA is used for a non-house purchase no bonus is paid. If a LISA is not used for a house purchase or withdrawn before you are 60, you will pay a penalty which could mean you get back slightly less than you have paid in.

With a Help to Buy ISA you can access the money for a house purchase and receive your bonus, once you have saved £1,600+ which can be achieved in 3 months. With a LISA you cannot use it without penalty until it has been open for a year.

LISAs can be invested in cash or stocks and shares, Help to Buy are cash ISAs only. There is a very limited choice of LISA providers.

There are lots of other technical differences and conditions to each of these ISAs and it is not straightforward to work out which is best.

However, they could work for you and to get a 25% bonus from the government is not to be sniffed at.

If you would like to discuss these or any other ISAs in detail, why not contact us? As ever the initial meeting is free and without any obligation.

Steve Graves
Robert Nicholas Financial Advisers