Help to Buy ISA vs Lifetime ISA – the key differences which impact your saving goals

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Help to Buy ISAs are now no longer available after the initiative came to an end late last year, but many are still saving through this method. However, emerging as a replacement is the Lifetime ISA, another popular account which can help with saving towards specific goals. Firstly, the Help to Buy ISA is designed to assist individuals who are looking to get on the property ladder for the first time.

Purchasing a first home can often be a significant task, and so the Help to Buy ISA offers a financial helping hand.

The account provides a 25 percent bonus on savings, where the government adds funds up to a maximum of £3,000.

This means for every £200 a person saves, they will receive a government bonus of £50.

Those with a Help to Buy ISA can save up to £200 a month, but kickstarting an account means people can deposit a lump sum of £1,200.

While the Help to Buy ISA scheme closed to new applicants in November 2019, for those who do have an account, it is not too late to benefit from it.

Contributions to a Help to Buy ISA can still be made until November 30, 2029 under current rules.

And there is also a further 12 months available to claim the bonus – meaning budding first time buyers have until December 1, 2030 to benefit. 

The Lifetime ISA, however, slightly differs, meaning some may choose this method of saving for the future.

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Unlike a Help to Buy ISA, the Lifetime ISA option is available to those looking to save for not only their first home, but potentially for retirement instead.

The account is open to 18 to 40 year olds, and enables Britons to put away £4,000 each year until the age of 50.

And like the Help to Buy, the government will add a 25 percent bonus to savings – but up to a maximum of £1,000 a year. 

Once reaching this age, a person is not able to pay into the ISA or earn the 25 percent bonus.

However, the account will stay open and savings continue to earn interest.

For those hoping to have both a Help to Buy ISA and a Lifetime ISA, this is possible.

It is, though, important to note that only the bonus from one of these accounts can be used to purchase a home. 

A Help to Buy ISA can also be transferred into a Lifetime ISA if people are concerned about the deadline, but there are also rules to bear in mind. 

The amount a person chooses to transfer does end up counting towards the annual £4,000 limit. 

And if a person does choose to withdraw funds from a Lifetime ISA before the age of 60, there are penalties to incur.

This is unlike the Help to Buy ISA, where savers can withdraw without hesitance. 

Britons are encouraged to save through ISAs due to the tax-free benefits, but there is a limit on how much individuals can put away.

In the current 2020/21 tax year, the amount a person is permitted to save across ISAs is £20,000. 

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