Switch your help to buy isa to a lifetime isa

Money

Savers putting aside money for their first home have just over two weeks to take advantage of a quirk that can add hundreds of pounds to their pot.

The opportunity, a one-off concession from the taxman, follows the arrival of the Lifetime Isa, a new type of account that was launched in April 2017.

You can switch your Help to Buy Isa savings into a newer Lifetime Isa.

That means you keep the full 25 per cent tax-free bonus on the money you’ve already saved — including any contributions during the previous tax year that started in April 2016.

Switch to the Lifetime Isa and benefit from two tax breaks designed for first-time buyers - normally not permitted by the taxman

Switch to the Lifetime Isa and benefit from two tax breaks designed for first-time buyers - normally not permitted by the taxman

Switch to the Lifetime Isa and benefit from two tax breaks designed for first-time buyers – normally not permitted by the taxman

Once your cash is safely in the Lifetime Isa, you can then add up to £4,000 to your savings before April 2018 and qualify for an extra 25 per cent bonus, worth up to £1,000.

That means you’ll have benefited from two tax breaks designed for first-time buyers — which normally isn’t permitted by the taxman.

Theoretically, you must take action before the end of the tax year on April 5, 2018, to get this extra bonus.

But, in reality, the deadline is sooner. Skipton Building Society, the only provider to offer a cash-based Lifetime Isa, is urging savers to take steps by March 1 to ensure that the transfer is completed in time.

You are limited to using cash from either the Help to Buy Isa or the Lifetime Isa for a house purchase.

So, if buying a property is your goal, there is no point saving into both accounts separately this year.

You will also be better off switching to the Lifetime Isa in the long-term because you will be able to build up a larger fund.

Both accounts offer the same 25 per cent bonus on your savings — but each has different savings limits.

With the Help to Buy Isa, your savings are capped at £2,400 a year, or £12,000 in total.

With the Lifetime Isa, you can save up to £4,000 a year, or £128,000 in total, and get the same 25 pc bonus. That means the maximum bonus you can receive in total under the Help to Buy Isa scheme is £3,000, compared with £32,000 on the Lifetime Isa.

Kris Brewster, head of products at Skipton BS, says: ‘This is a unique chance for future first-time buyers to receive a significant boost to their savings.

‘We’re expecting to see a very high level of demand for those who want to reap the benefits on this one-off opportunity and want to encourage people to apply before March 1.’

How does it work? 

The Help to Buy Isa was launched in December 2015 to help first-time buyers aged 16 and over build up savings to get onto the property ladder.

You can put in a maximum £200 a month and get a 25 per cent tax-free bonus from the Government when you buy your first home costing up to £450,000 in London or £250,000 elsewhere in the UK.

Sixteen months later, in April 2017, came the Lifetime Isa to encourage those aged 18 to 40 to save flexibly for the long-term.

It offers the same tax-free 25 per cent bonus if you use the money for a first home or for retirement from age 60. If you buy a property, it must be worth no more than £450,000.

If you switch from the Help to Buy Isa into the Lifetime Isa, you keep everything you’ve built up.

Then you’re allowed to put up to another £4,000 into your account each tax year — this one included. That’s £1,600 more than the Help to Buy’s £2,400 — an extra £400 in potential bonuses each year.

The switch won’t work for you if you are planning to buy your first home within the next 12 months.

This is because you have to hold your Lifetime Isa for at least a year to qualify for the 25 per cent bonus.

Under Help to Buy rules, there is no time limit, but you won’t get any bonus until you have £1,200 in your account.

 The online Skipton account has proved popular since it was first launched in June. Already, about 48,000 savers have opened one

When it rolled out the Lifetime Isa, the Government said that you could transfer any money from your Help to Buy Isa before April 6 this year without it all counting towards your £4,000 Lifetime Isa allowance for this year.

The only portion that will is any Help to Buy savings for this tax year (April 6, 2017 to April 5, 2018) that you put in after the arrival of the Lifetime Isa — a maximum of £2,200 to date. 

If you have put in this full amount, you will still have an extra £1,800 Lifetime Isa allowance for this tax year, which will qualify for a bonus of £450.

If you transfer after April 5 this year, then all your Help to Buy money will count towards your annual Lifetime Isa £4,000 limit, so you will miss the extra bonus.

A cash Lifetime Isa is considered safer than a share-based one when saving for a house deposit.

But the Government has failed to convince banks to offer them and none plans to join Skipton BS anytime soon.

However, the online Skipton account has proved popular since it was first launched in June. Already, about 48,000 savers have opened one.

More than seven in ten have done so to save a deposit for their first home. You can open the cash Lifetime Isa with as little as £1 and then transfer your Help to Buy Isa over to it.

You won’t earn much interest at 0.75 per cent — £30 for a year on the full £4,000 — but the 25 per cent bonus is the big attraction.

Once you have found a home and start the buying process, you have quicker access to money in a Lifetime Isa. This means that you can use it towards the deposit on your first home.

With the Help to Buy version, the money is not paid until you actually complete the purchase.

But beware, if you withdraw your money from the Lifetime Isa before the age of 60 and don’t spend it on a house, you pay a 25 per cent penalty on the full amount.

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