Lifetime ISA vs Help to Buy ISA – what you need to know

As the UK’s largest specialist affordable housing solicitor, we have many clients using Lifetime ISAs and the Help to Buy ISAs to help buy their first home. However, it is useful to know there are some important differences between them, and special rules apply for buying a shared ownership property.

Help to Buy ISA

With a Help to Buy ISA you can save up to £12,000 and if used to buy your first home the government will add a 25% bonus to your savings (maximum £3,000). The Help to Buy ISA closed to new applicants in November 2019, however if you already have an account, you can continue saving up until November 2029.

To qualify for the bonus, the property you buy must be worth £250,000 or less, or up to £450,000 in London. If you are buying through shared ownership (where you buy a percentage share of a property and pay rent on the remaining share) the purchase price is assessed against a 100% share of the property and not the value of the percentage purchased. Your solicitor will need to make a calculation based on the percentage share price and rent payable during the life of the lease to confirm that you qualify.

The bonus is paid on the completion of a house purchase directly to your solicitor, which means that it must be used towards the acquisition of the property.

In order for solicitors to apply for your Help to Buy ISA Bonus, you must close your Help to Buy ISA account and provide them with a copy of the Closing Statement and a completed First Time Buyer Declaration form.

The latest you can claim the government bonus is December 2030. You can also withdraw the money if you are not buying a house, but you wouldn’t receive the bonus.

Lifetime ISA

Lifetime ISAs (LISAs) were launched in April 2017 and are available for UK residents aged between 18 and 39. As with the Help to Buy ISA you are entitled to a 25% government bonus, if it is used to buy your first home or to pay for your retirement at the age of 50.

You can save up to £4,000 each year and the government bonus is applied monthly rather than at the end. You can use the money for your deposit and mortgage, as long as the property is worth £450,000 or less. If you withdraw money for reasons other than buying your first home or for retirement, it is subject to a 25% charge.

As with Help to Buy ISAs, if you are buying a shared ownership property, the price cap applies to the full sale price rather than the share you are buying and your conveyancer will calculate your eligibility for the bonus based on the price paid for the equity share you are buying, plus the net present value of rental payments due over the term of the lease.

All companies that provide LISAs have slightly different ways for you to get your money and claim the bonus. However essentially you will need to complete and return your client declaration to your solicitor with confirmation of when you want the funds for, as it can take up to 30 days to get the funds from a LISA account.

Your solicitor will liaise with your LISA provider and funds will go directly to your solicitor who will hold them until completion.

Things to note

If you have both a Lifetime ISA and a Help to Buy ISA you can only receive a government bonus on one of them, rather than both. However, if you are buying with someone who also has their own Lifetime ISA or Help to Buy ISA, they can use their savings and government bonus as well.

If you have any queries about the ISAs either visit https://www.gov.uk/lifetime-isa, a LISA provider or your solicitor.