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Is it better to have a Lifetime ISA or a Help to Buy ISA?

One of the key financial goals people have is to buy their own home and two financial products that can help you achieve this are the Help to Buy ISA (H2B ISA) and the Lifetime ISA (LISA).

For those who aren’t aware, an ISA is an Individual Savings Account which is a type of account that you can use either for savings or investments where the earnings (be it dividends or interest) are tax-free.

Not only do you get the tax benefits but with the Lifetime ISA and the Help to Buy ISA but you also get a 25% boost on your savings from the government to increase your deposit and improve your chances of getting a decent mortgage deal.

Prefer to watch than read? Here’s my quick summary of the differences:

Help to Buy ISA

The Help to Buy ISA was withdrawn from the market in November 2019 however those who still have one may be wondering whether they should keep their H2B ISA or ditch it for a LISA.

Every month, those with a H2B ISA can put £200 in their account and at the end of the year the government puts in a bonus of 25% of what was put in throughout the last year.

This can then be put towards the deposit for a house costing up to £250,000 (£450,000 in London) and if you don’t use the money to buy a qualifying property you can take the money out without penalty.

Lifetime ISA

The Lifetime ISA is available to those aged 18-40 and can be used to save for a property or retirement.

Every year, you can put £4000 into a LISA and at the end of the year the government puts in a bonus of 25% of what was put in throughout the last year.

With a LISA, you can buy a property worth up to £450,000 anywhere in the country however if you do not use the money to buy a qualifying property and want to withdraw you will be charged an effective 6.25% penalty as there is a charge to withdraw of 25% of everything in the account.

You can also use a LISA to save for retirement however for most it would be more effective to use either your workplace pension (if this is available to you, do that, your employer has to contribute to your pension too) or a Self Invested Personal Pension (SIPP – for the self-employed).

The money can only be used from the account after a year of it being opened so if you think you’ll have a use for a LISA open one today and put a pound in – thank me later.

Whether you should keep a Help to Buy ISA or a Lifetime ISA depends on your exact situation but for most (if you know you will buy a qualifying property) go and research opening a LISA.

Do comment your thoughts below.

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4 responses to “Is it better to have a Lifetime ISA or a Help to Buy ISA?”

  1. hadsperry Avatar
    hadsperry

    A LISA does seem worthwhile. Here in the US, traditional company pension plans are rapidly disappearing, so employees have to seek out their own plans or just put aside savings (virtually impossible).

    Liked by 1 person

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    1. Gabriella B Avatar
      Gabriella B

      Company pension plans are commonplace in the UK. In fact, all UK employees aged over 22 are automatically enrolled into a workplace pension where the employer has to contribute.

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