Lifetime ISAs, S&S ISAs, Cash ISAs

[Skyedriver]

Son has a S&S Isa with a small sum invested (came from his JISA at 18), nothing invested this financial year
He has a small sum in a cash ISA invested this year.
Wife, watching TV, heard a little about Lifetime ISAs for future house purchase.

Can he invest further in the S&S ISA this year despite opening a cash ISA?
Can he open a Lifetime ISA this financial year despite opening a cash ISA?
Is a Lifetime ISA worth the bother (apparently there's a financial incentive of 25% from "the Government" or may be until the forthcoming budget).

Thanks for advice .

[PaulWoof]

As far as i am aware the rules on ISA's changed in recent times to be much more lax.

To the point of you can open as many ISA's and pay into as many ISA's as you want, the only thing is the £20k limit. Or it could be one of each type. Have a check on MSE their guides are usually pretty straightfoward.

I had a LISA for a number of years and recently redeemed for a house purchase. I maxed it out each year for the goverment bonus over 4 or 5 years. so 4/5K from the guberment.

LISA can be either a cash LISA or a stocks and shares LISA. Limited providers though. I started with skipton cash LISA and transferred to a MoneyBox cash LISA as was the highest interest rate. The goverment bonus resets with the financial year with the max input of £4000 getting you the £1000 bonus. The bonus is paid monthly after deposits so could deposit throughout the year and get 25% the month after or all in one go. makes no difference.

I had better interest rate from chase savings account so i would wait untill jan/feb time then move the lump over before year end.

The downside is the lock in. one your money is in there, it can only be removed for house purchase (max £450,000) or 60 years old. if you withdraw before then you get a 25% penalty on the total (not just the bonus) so you will lose money.

If your son's defintely on the house purchasing route one day. Seems a no brainer of a 25% return minimum each year before interest. or possible more/less with S&S LISA.

solicitor deals with the withdrawal at house purchase time which is straight forward enough.

[Skyedriver]

Thank you

[supersport]

Absolutely yes.

They are brilliant. You get the 25% up lift for up to £4K a year. Unlike a pension if you don’t buy a house it can be accessed at 60 and isn’t taxed.

Just DONT cash it outside of the rules.

[Jon39]

supersport said:

... if you don’t buy a house, it can be accessed at 60 and isn’t taxed.

Those circumstances would be a disaster though for a young person.

Imagine cash or cash equivalent savings over a 40 years period.
Inflation would decimate the monetary value.

[Rick101]

Any decent fund should outstrip inflation by some margin.

[mikeiow]

Jon39 said:

Those circumstances would be a disaster though for a young person.

Imagine cash or cash equivalent savings over a 40 years period.
Inflation would decimate the monetary value.

Indeed….but I would always recommend a S&S ISA *unless* you were certain you need it (for house purchase) within 12-24 months.

Even then, if markets took a bit of a dip, you have the 25% free uplift to ease any short term pain.

Our offspring are several years into their ones - with AJBell, in a broadly global adventurous fund IIRC.

Drip-feed and enjoy!

It would be nice if the Government relaxed/removed the 450k limit. Perfectly possibly for a young London couple to be buying their first property a bit above that limit these days….

[Skyedriver]

Son about to open a "Lifetime ISA" - wonder if the benefits/bonuses are going to take a hit in the budget

[Hustle_]

PaulWoof said:

The downside is the lock in. one your money is in there, it can only be removed for house purchase (max £450,000) or 60 years old. if you withdraw before then you get a 25% penalty on the total (not just the bonus) so you will lose money.

You have to be sure you're going to be within these limitations. I saved into a LISA. a few postponements and a bit of budget creep later, and the property I eventually bought was exactly £450k. If the property had been any more I would've lost not only the 25% bonus but all of the interest and some of my original capital too. It caused me a bit of worry.

Martin Lewis and presumably others have been lobbying to make sure you'd at least get your original capital back in the event that you wanted to withdraw but they haven't done that yet. Also I have not seen them adjust the property value limit upwards in the past several years.

I would recommend it but make sure you are aware of the constraints... and don't expect them to change those constraints favourably.

[mikeiow]

Hustle_ said:

You have to be sure you're going to be within these limitations. I saved into a LISA. a few postponements and a bit of budget creep later, and the property I eventually bought was exactly £450k. If the property had been any more I would've lost not only the 25% bonus but all of the interest and some of my original capital too. It caused me a bit of worry.

Martin Lewis and presumably others have been lobbying to make sure you'd at least get your original capital back in the event that you wanted to withdraw but they haven't done that yet. Also I have not seen them adjust the property value limit upwards in the past several years.

I would recommend it but make sure you are aware of the constraints... and don't expect them to change those constraints favourably.

You need not have lost ANY of the bonus or interest IF you held the LISA until you were 60.

You can keep contributing until you are 50, but in the scenario you suggest (eg, home for £460k, can't use the LISA for deposit), the monies can help OlderYou™ as part of your retirement pot.

I do firmly agree that aribitrary £450K limit has never been increased with inflation and really should be - property in London could easily take a young couple on a decent wage away from being able to use it, with some FTB purchases perhaps hitting £500K or more. Clearly not many, but the Government should take action to avoid losing that work for the deposit.

[Hustle_]

mikeiow said:

You need not have lost ANY of the bonus or interest IF you held the LISA until you were 60.

I am pointing out that that is not an ideal outcome for someone who has put significant savings into LISA with the express intention of buying a property. If you need that money to complete your purchase you have no choice but to withdraw it. Or else 'just wait 30 years'...

[Skyedriver]

Sorry, this is a trap I didn't know about.
So if the property is worth more than £450K you can't use the LISA money and you have to cash in and lose the bonuses etc.
Highly unlikely scenario for him I admit, even if he was buying in Edinburgh but I didn't know this.
Presumably if it's a £150 - £200K flat then it'll be OK he'll keep his bonus & interest?

[mikeiow]

Hustle_ said:

I am pointing out that that is not an ideal outcome for someone who has put significant savings into LISA with the express intention of buying a property. If you need that money to complete your purchase you have no choice but to withdraw it. Or else 'just wait 30 years'...

Sure, I understand - just wanted people to be aware you wouldn't *have* to cash it in and lose out, other than as you now say, having to get at the money.

Skyedriver said:

Sorry, this is a trap I didn't know about.
So if the property is worth more than £450K you can't use the LISA money and you have to cash in and lose the bonuses etc.
Highly unlikely scenario for him I admit, even if he was buying in Edinburgh but I didn't know this.
Presumably if it's a £150 - £200K flat then it'll be OK he'll keep his bonus & interest?

Correct - there is a £450k limit on the property, even if it is a couple (who can 'pool' their LISA money to use). That is the scenario that *could* catch a few out.
Full rules at https://www.gov.uk/lifetime-isa

[Rick101]

I'd go with LISA being a good thing. Take these opportunities whilst they are available.

I've only a few quid in but had the sense to at least open one before hitting 40 and encouraged others to do the same. I just wish I had funds to max it from day 1.

Just running a generic high growth fund I'm average 14% up.
If you consider my actual contribition, it's closer to 30% up.

Even if I redemeed early and took a full 25% hit, I'd still be fractionally up.

I've a few more years to contibute and it should result in a nice pot at 60. Not massive, maybe enough for a sports car. Failing that, I may just leave it in and just calculate a regular drawdown to top up my old age pension.