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Lifetime ISAs
Lily Bridgwood
Posted: 13 November 2017 11:25:09(UTC)
#1

Joined: 13/11/2017(UTC)
Posts: 1

Are they worth it, or would my money be better off in a pension?
William Dickinson
Posted: 19 November 2017 10:13:31(UTC)
#2

Joined: 10/12/2009(UTC)
Posts: 9

Was thanked: 1 time(s) in 1 post(s)
In very simple terms an ISA will give you instant access to 100% your funds at any age. That is to say you can cash in all of your ISA's in one go with no tax liabilities. With an ISA you pay tax on all the money that goes INTO the ISA but no tax on the growth (profit) you make on the ISA when you take money OUT.

Pensions are more complicated and have restrictions regarding your age and the amount you can draw-down in any given tax year. For basic rate tax payers you do not pay tax on the money you put INTO a pension. However, apart from the 25% lump-sum which you can take tax-free, you will pay tax on all profits and the original capital when you take money OUT. The rules are a little more complicated for higher rate taxpayers.

The main "up-side" to a pension versus an ISA for basic rate taxpayers is that the government will rebate 20% tax for all sums you contribute to the pension directly to your pension fund.If you are a higher rate (40/50%) tax payer you need to recover anything over 20% through your tax return. In essence you get an instant "profit" on contributions into a pension fund in the form of the tax rebate.

If you are on the "edge" of paying 40% tax it would be financially prudent put money that will push you into the 40% tax band into a pension to avoid paying tax on it and get your 20% rebate at the same time with the remaining 20% recovered when you file your tax return.

I use AJ BELL to manage my ISA's and SIPP's on-line. I have a mix of the two. ISA's for holiday savings and SIPP for long-term savings.I have found their fees reasonable and their service and support excellent over the 20 years I have been using them. You have an almost unlimited access to stocks and managed funds.
DJLW
Posted: 19 November 2017 10:33:27(UTC)
#3

Joined: 06/01/2014(UTC)
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And Lifetime ISAs are somewhere in the middle between Pensions and ISAs - they provide a bit of extra govt incentive on the funds invested but limit your ability to withdraw funds (without penalty) to a purpose of first time house purchase or retirement.

I am currently discussing with my daughter whether we recycle some of her existing ISA funds into a Lifetime ISA.
Micawber
Posted: 19 November 2017 11:51:06(UTC)
#4

Joined: 27/01/2013(UTC)
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A subject also of key interest to my offspring, all of whom have ISAs. I have advised them to hold off Lifetime ISA for several instinctive reasons. They are a new creation of Osborne's who is no longer in office. There are uncertainties over providers. They have restrictions and penalties. I've suggested my offspring wait and see for a while, pending stories appearing in the media about the Lifetime ISAs' operation, and problems, in practice. This might mean foregoing "free money" in favour of the freedom to get your cash when you want or need it, without penalty.
4 users thanked Micawber for this post.
markus on 19/11/2017(UTC), DJLW on 19/11/2017(UTC), Alan Selwood on 19/11/2017(UTC), Tim D on 20/11/2017(UTC)
DJLW
Posted: 19 November 2017 17:21:56(UTC)
#5

Joined: 06/01/2014(UTC)
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Micawber;53403 wrote:
A subject also of key interest to my offspring, all of whom have ISAs. I have advised them to hold off Lifetime ISA for several instinctive reasons. They are a new creation of Osborne's who is no longer in office. There are uncertainties over providers. They have restrictions and penalties. I've suggested my offspring wait and see for a while, pending stories appearing in the media about the Lifetime ISAs' operation, and problems, in practice. This might mean foregoing "free money" in favour of the freedom to get your cash when you want or need it, without penalty.


A trade off indeed!

As an alternative to Pensions I would agree with your rationale - far too much time for things to change for the sake of an extra 20% per year on £4000K. (40 years given my daughter is 20).

Hopefully though she will at some stage want to and be able to buy a property - maybe in the next 5 -10 years.

Against this backdrop I think the offer of free money becomes a little more attractive. The downside is measurable in that it is the return of the 20% plus a little more if I remember based on how the arithmetic works.

I had not considered the operational / provider risk that you mention given that as far as I could see HL offered the product (I am advocating their solidity and trustworthiness here rather than their pricing structure albeit on ITs they are OK).

Current plan is to ponder until March and leap into action or not ahead of the end of the tax year - given that the limit is 4K any migration from ISA to Lifetime ISA would be gradual.
Alan Selwood
Posted: 19 November 2017 23:56:09(UTC)
#6

Joined: 17/12/2011(UTC)
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Although you might argue that 'every little helps', the gain from putting £4000 into a Lifetime ISA is very puny compared with the retirement income that will be needed later in life compared with most people's ability to save enough from salary to make that retirement comfortable.

So I am with micawber on this one - I would hold off if I was in that position.
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