The last opportunity to take out a Help-to-Buy ISA closed last weekend. It had its faults, but many people were delighted to discover a way of putting away cash for their first home that would let the government swell their savings.
At Continuum, we are looking at the ways that remain to make the most of your money now, and find some solutions that are even better.
What was wrong with the Help-to-Buy ISA?
The Help-to-Buy ISA was designed to help people over 16 save towards buying their first property. They let savers put in up to £1,200 in the first month and £200 a month thereafter to build up a maximum of £12,000.
What made the Help-to-Buy ISA rewarding is that as well as interest, savings earn a government bonus of £1 for each £4 put in, meaning an extra cash sum of up to £3,000. What’s more, like other ISAs, the taxman could not take a share.
The main problem was that the cash in a Help-to-Buy ISA could not be used for the one purpose people really wanted it – paying for the deposit on their first home. There were limits on transferring in cash from other ISAs the interest available was disappointing – and there were no Stock and Shares Help-to-Buy ISAs available,
Although the Help-to-Buy ISA is shut to new applicants if you already have an account you can keep saving into it until 30th November 2029.
What can you have instead?
Lifetime ISAs or LISAs which were introduced in April 2017 will continue to be available and seem to overcome many of the Help to Buy ISA’s shortcomings. You must be 18 or over but under 40 to open a LISA, and allow up to £4,000 to be saved each tax year – and like the Help-to-Buy ISA they offer a government bonus of 25%, up to a maximum £1,000 per year on your savings. However, they are more versatile and as well as buying a home, they can be used to fund retirement. What’s more, you can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both, and continue paying in until you are 50. When you turn 50, your account will stay open and your savings will still earn interest or investment returns, but you will not be able to contribute more yourself or earn the 25% bonus.
This should mean that the LISA is much more versatile and potentially much more rewarding than the Help-to-Buy ISA.
There are still some shortcomings. Unlike other ISAs if you already own a home you cannot access your savings until you reach 60 except under exceptional circumstances.
Other ways to use ISAs
Attractive though they can be with their bonuses, the LISA is probably not enough for your long-term plans as the amount you can put in each year is limited to just £4000.
This comes from your £20,000 annual ISA allowance, which most people will want to use to the full. Remember, most types of savings and investment are subject to tax, sooner or later. With an ISA all the interest, income and capital gains generated in your ISA remain yours, and the taxman cannot touch it even when you come to draw it out. It means that an ISA can be a simple and tax-efficient way to grow your wealth.
So which ISAs should you choose?
If you are prepared to look at investment, Stocks and Shares ISAs are an easy solution. Your money will be invested in a shared fund, and you can choose a fund to suit your approach to risk.
There are other ISAs to consider, such as Junior ISAs intended for children and young people under 18, and Innovative Finance ISAs which allow the tax advantages of Cash ISA investment to be combined with the potential returns of peer-to-peer lending.
At Continuum we have found that most people may be better off with an ISA, or a combination of ISA products. To find out more about how their tax efficiency could help you grow your money, download our expert guide to tax efficient investing and talk to your Continuum adviser – or call us.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
The Financial Conduct Authority does not regulate deposit accounts.
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