The government has recently shared further details about the new first time buyer individual savings account (FTB ISA), which is set to replace the lifetime ISA (LISA), although an introduction date has not yet been announced.
Essential differences
The LISA never garnered a large take-up, so its replacement has some fundamental changes:
· Target: The FTB ISA is for first-time property purchasers only, whereas the LISA can also be used to save money for retirement.
· Age limit: To open a LISA, a saver must be 18 to 40, with no subscriptions allowed over age 50. With the FTB ISA, the only requirement is that a saver be 18 or over; there is no upper age limit.
· Bonus: With the LISA, the government bonus is paid monthly, so the saver benefits from interest or investment growth on bonus payments. However, with the FTB ISA, the bonus will only be paid when a property is purchased.
· Withdrawal penalty: The LISA comes with a withdrawal penalty of 25%, meaning a saver will end up with less than they paid in. There will be no penalty for withdrawing funds from the FTB ISA.
Interaction
A saver who already has a LISA, or opens one before the FTB ISA is introduced, will be able to continue to contribute to it indefinitely. Although it will not be possible to transfer a LISA into the FTB ISA, a saver will have the choice each tax year whether to save into a LISA or FTB ISA. It will then be possible to combine the funds held in both accounts when making a property purchase.
Although there is no withdrawal penalty for the FTB ISA, the timing of the government bonus would seem to give the LISA a distinct advantage, although full details of the new product have yet to be announced. The government’s guide to lifetime ISAs can be found here.
Planning for your first home?
Changes to savings schemes can affect how you plan for a first property purchase. Understanding the options available can help you make the most of your savings and avoid missing valuable incentives.
Our team can help you understand how the proposed changes could affect your financial plans and the steps worth considering.
Speak to our team about your financial planning.
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