Isa guide 2016: What first-time buyers need to know about the Lifetime Isa and the Personal Savings Allowance
It only seems like yesterday that George Osborne was unveiling his Help to Buy Isa to let more aspiring homeowners get a foot on the property ladder.
But the announcement of the Lifetime Isa in this year's Budget, and the introduction of the Personal Savings Allowance – which comes into effect on 6 April – is about to complicate first-time buyers' saving strategies. So, what do you need to know?
Lifetime Isa
On the face of it, George Osborne’s new Lifetime Isa, or Lisa, looks like a good deal for the self-employed and aspiring homeowners under 40.
It has several advantages over the Help to Buy Isa, which it is intended to replace.
First, you can use it to invest in stocks and shares. Second, you aren’t tied to monthly payments of £200, and the government pays in its 25 per cent bonus on annual contributions of up to £4,000 at the end of each tax year, not just when you come to buy your property.
Londoners, beware
But if you’re looking to buy in London, the Lisa is probably useless.
The highest priced house you can buy is £450,000 and, if you can’t find anything in the capital beneath this ceiling, then you’ll have to wait until you’re 60 to access any savings in the Lisa, or lose the government’s bonus and be taxed 5 per cent on any withdrawals.
So Londoners should arguably look upon the Lisa chiefly as a pot for retirement. And even then, it may be more profitable to put that sum into a pension to maximise the benefit of any employer contributions.
The Personal Savings Allowance
If you’re saving for a deposit, you may prefer to keep your savings in cash because it’s lower risk. But you could find better cash rates outside the Isa wrapper and may be able to avoid tax on those savings anyway.
Under the new Personal Savings Allowance, which is introduced in April, basic and higher rate taxpayers can earn £1,000 and £500 respectively from bank and building society accounts, P2P lending and government and corporate bonds without paying tax. The Santander 123 current account, for example, currently offers 3 per cent interest on deposits between £3,000 and £20,000, which is higher than most cash Isas.