Is there a benefit of reaching the minimum investment in a Help To Buy ISA before opening a LISA?

12 April 2021

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Question by Michael

My Son has a HTB ISA with a balance of around £1000. He has now decided to open a LISA as more money can be saved and he will not be buying a property anytime soon. Is there any advantage of making £200 payments for the next few months so the HTB reaches the minimum £1600 level to trigger the bonus? If he then transfers the min £1600 into a LISA, do the government include the 25% bonus as a cash payment into the LISA?


Answered by Robin Keyte

Dear Michael

Help to Buy (HTB) ISAs closed to new accounts on 30 November 2019 but existing HTB ISAs can continue receiving savings until November 2029.

As you say, your son needs to have saved £1,600 in the HTB ISA before he can claim the minimum government bonus of £400.

The maximum government bonus available is £3,000 based on accumulated savings of £12,000

The important thing to note is the mechanism used for the government to apply the bonus. It is only when your son buys his first home that the conveyancing solicitor can apply for the government bonus, once your son has told his HTB ISA provider that he is closing the ISA.

In summary, the government bonus will not automatically become available just because the savings reach £1,600.

This is of course a key difference compared to the Lifetime ISA (LISA) where the 25% bonus is automatically added to the savings.

A LISA allows more to be invested (up to £4,000 per annum) and access to a wide choice of investment funds which should hopefully provide better returns than a Cash based investment, but of course that cannot be guaranteed and the value of investments can go down as well as up.

However there are other points to consider, for instance your son can make a withdrawal from his HTB ISA at any time whereas there are restrictions associated with withdrawing from a Lifetime ISA.

It is possible for your son to access the LISA on the following occasions without incurring an exit penalty:

  • buying a first home (the property value cannot exceed £450,000)

  • attaining age 60 or over

  • being diagnosed as terminally ill, with less than 12 months to live.

When your son turns 50, he will not be able to pay any further contributions into the Lifetime ISA. However, the account will stay open and their savings will still earn interest or investment returns.

Answered by

Robin Keyte

Director

I am a long standing fee based financial planner with an interest in ethical investment (past UKSIF board member 2006-09) and sustainable provision of affordable financial planning services.