Transfers take time and must be completed by 5 April 2018
Savers can boost their Lifetime ISA pot to £10,500
20% of new Lifetime ISAs opened via AJ Bell are for Help to Buy transfers
Transfers take time and must be completed by 5 April 2018
Savers with funds invested in Help to Buy (H2B) ISAs have just over two months to take advantage of a quirk in the rules which means transfers to Lifetime ISAs (LISA) won’t count towards the £4,000 annual limit for the 2017/18 tax year. However, savers need to allow enough time to gather all the relevant information and the transfer itself can take a few weeks to complete, so waiting until March to start thinking about this might be too late. The sooner savers start the process, the more likely they are to meet the 5 April deadline.
Savers can boost their Lifetime ISA pot to £10,500
The quirk in the rules presents a window of opportunity for investors to scoop up a bonus of up to £1,100 on money moved from their H2B ISA by 5 April 2018.
Only the value in the H2B ISA as at 5 April 2017 will be eligible – anything paid in after that date will count towards the £4,000 LISA limit for 2017/18.
Someone contributing the maximum to a H2B ISA from December 2015 – April 2017 (£1,200 in December 2015, £200 per month thereafter) will have saved £4,400. The 25% Government bonus on this amount when transferred to a LISA would be £1,100.
Because this does not affect their LISA allowance, savers can contribute an additional £4,000 to their LISA and receive a 25% bonus of £1,000. This means they have paid in a total of £8,400 and Government bonuses have boosted the amount to £10,500.
If they continue to contribute the maximum £4,000 to their LISA for the next four years, with the Government bonus and investment growth of 5% they would have a fund worth just over £35,000 – more than the average deposit for first time buyers of £33,000*.
20% of new Lifetime ISAs opened via AJ Bell are for Help to Buy transfers
AJ Bell has seen a marked increase in transfers from H2B ISAs so far this year as savers look to take advantage of this loophole. Currently 20% of all new LISAs opened via AJ Bell Youinvest are for H2B transfers.
AJ Bell’s LISA is the cheapest stocks and shares LISA available with a 0.25% annual charge meaning investors will pay £2.50 per annum for each £1,000 invested, plus any fund charge if they choose to invest in funds.
Tom Selby, senior analyst at AJ Bell, comments:
“Anyone with money invested in a Help to Buy ISA should seriously consider taking advantage of this one-off opportunity to transfer to a Lifetime ISA and boost the value of their savings pot.
“This is particularly important for anyone who has no immediate plans to draw on the fund as the bonus could benefit from extra investment growth in the LISA. This is because the Help to Buy ISA bonus is only paid out on completion of the property purchase.
“In essence, the Lifetime ISA is a souped-up version of the Help-to-Buy ISA – you get the same bonus, the annual limit is higher and you can take the money out tax-free both when you buy your first home and once you hit your 60th birthday (or if you fall into terminal ill health).
“The only catch is the 25% Government exit penalty on other withdrawals. Its existence means anyone considering opening or transferring funds to a LISA needs to be sure they won’t need the money for anything other than retirement or to put towards their first home.”
*Halifax first time buyer review - https://static.halifax.co.uk/assets/pdf/mortgages/pdf/170701-Halifax-first-time-buyer-review_July2017.pdf