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Help to Buy ISA vs Lifetime ISA: What is the difference between two accounts?

Help To Buy ISAs were originally launched in December 2015, designed to help first time buyers get on the increasingly expensive property ladder. For first time buyers aged over 16, the Help To Buy ISA provided a 25 percent bonus on savings. The government adds 25 percent up to a maximum of £3,000. This bonus can be used to purchase a home worth up to £250,000, or up to £450,000 in London.

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The bonus is paid once the offer for a house has been accepted, where the solicitor or conveyancer will apply for the government bonus.

The minimum needed to qualify for any government bonus is £1,600, which would provide a £400 bonus.

Help to Buy ISAs are available for each buyer and not each home.

This means that for those purchasing a home with a partner a total bonus of over £6,000 could be attainable.

The scheme has proven popular across the country. Since the launch of the Help to Buy ISA, over 250,000 property completions have been supported by the scheme, with nearly 340,000 bonuses being paid at an average value of £943, according to the latest figures from HM Treasury.

However, the Help To Buy ISA scheme closed on 30 November 2019. Those who managed to open one before this date can still contribute until 30 November 2029,
with a further 12 months to claim the bonus until 1 December 2030.

A similar scheme was launched in April 2017. This new ISA, the Lifetime ISA, offers bonuses similar to the Help to Buy ISA with a few notable differences.

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The Lifetime ISA is designed to help those aged between 18 and 40 save for their first home or retirement.

The government will provide a bonus worth 25 percent of what is paid into the account, up to a maximum of £4,000 per year.

The bonus can be used to purchase home with up to £450,000, regardless of where it is in the country.

The maximum that can be put into a Lifetime ISA is £4,000 per tax year and the bonus will be paid monthly by the government.

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HMRC calculates the bonus on a month-by-month basis, it is based on payments made into the account from the 6th of the month to the 5th of the following month.

Lifetime ISAs can be contributed to up until age 50. A key difference between the Help To Buy and Lifetime ISA is the secondary usage of Lifetime ISAs.

Unlike the Help To Buy ISA, the bonus available doesn’t have to be used for a first time home purchase.

From age 60, full or partial withdrawals can be made from a Lifetime ISA without paying a fee. There will be no tax to pay on this and the money can be used for any reason.

It’s possible to have both a Help To Buy and Lifetime ISA open at the same time but only the bonus from one of them can be used for purchasing a home.

Help To Buy ISAs can be transferred into Lifetime ISAs but there are a few things to note before action is taken. The amount transferred will count towards the yearly £4,000 limit.There are no withdrawal penalties for Help to Buy ISAs but there is a 25 percent penalty on all withdrawals from Lifetime ISAs (prior to age 60).

Also, not all Lifetime ISAs allow transfers and those that do will have varying interest rate levels across products and providers. It is important to check the terms and conditions of individual products before a switch is made.For those looking to utilise the best options for buying a home or retirement, the lifetime ISA offers better longterm outcomes.

The maximum bonus from a help to buy ISA is £3,000, regardless of how much is put into the account. Whereas for Lifetime ISAs, assuming maximum contributions are made over the course of 32 years, a total of £32,000 can be gained in bonuses.

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