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If I'm aiming to buy a house for more than £450k, is it still worth me setting up a LISA?

18 March 2022

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Question by Flo

If I'm aiming to buy a house for more than £450k, is it still worth me setting up a LISA?

Further, should I be setting up a LISA or a SIPP if I'm very nearly a higher rate taxpayer? Won't I receive more from the government via a SIPP? Thanks!


Answered by Laura Ripley

Hello Flo,

Great question.

You can access the LISA to buy your home of over £450k but you will pay a penalty of 25% of the value of your LISA at that time, which makes it difficult to justify for that purpose. You can however, keeping funding the LISA (with the bonus included) to use when you hit 60 (let me caveat this with; 60 is the current rule but this might change before you get there!)

Remembering that LISAs only currently have a £4,000 per annum allowance so its 'saving capacity' is on a relatively small scale especially when you are looking at buying a home over £450k!

Pensions (like your SIPP) are a great way to save for your retirement through tax efficient savings but your SIPP can't be used to buy your home under any circumstances. As a basic rate tax payer you currently receive 20% tax relief - meaning for every 80p you add to your pension, your pension receives a further 20p. Which is a 25% uplift on what you put in i.e. the same as a LISA. If you move into higher rates of tax you can claim 40% tax relief on contributions that fall into your higher rate tax band. A quick note on pension contributions: if you are not already paying by salary sacrifice, please please ask your employer about facilitating this. It will save you (and your employer) National Insurance.

So the question is: are the savings you are making going to be used for your home worth over £450k? If they are then you can rule out LISA and SIPP. Having said that, you really want to balance tax planning opportunities (i.e. tax relief on your pensions contributions), meeting short term objectives (i.e. buying a house) and meeting long term objective (i.e. your retirement) which often means you will be best making savings to various 'pots' to be used for different purposes.

A good place to start is to do a budget planner to work out what you have spare for saving each month. Then quantify what you need for each of your objectives and map out how much you need to put away each month for each of those objectives. As financial planners, we spend a great deal of time doing just that with our clients through a powerful cash flow modelling tool but an excel can be used also.

I hope this helps but please get in touch if you have any further questions.

Best wishes
Laura


Answered by

Laura Ripley

Chartered Financial Planner

I am a Chartered Financial Planner and Operations Director of Handford Aitkenhead & Walker, a practice that has been in business for over 40 years. I also hold the Investment Management Certificate and co-manage the investment solutions for our clients.