You can get hundreds of pounds more in contribution from the government to buy your first home if you transfer an existing Help to Buy Isa into a Lifetime Isa. But you have to be quick about it because the transfer must be done before April 2018.
The Help to Buy (HTB) Isa is a savings plan with government bonuses which gives financial assistance to first-time buyers. It ends in 2019 and the government is keen to get people across into its replacement, the Lifetime Isa (Lisa). This has a bigger bonus and can be used to buy a (first-time) property or as retirement savings but you must be aged between 18 and 40 to get one. (There’s also a stiff penalty for early surrender but that’s the price to pay for free cash!)
The loophole is complicated to explain so I’m relying on a worked example from finance firm Hargreaves Lansdown which hopefully will make it clearer. Let’s assume Miss Minted opened a HTB Isa in December 2015, had put in £4,000 by April 2017 and then transferred this to a Lisa. If it was in any other year, she would be able to transfer the £4,000 and get a government bonus of £1,000. However, it would use up her entire allowance (so she couldn’t contribute any more or get any more bonus).
This year, however, she can transfer the HTB Isa without using up any of her Lisa allowance for this year. This means she can contribute another £4,000 by April 2018 (a double whammy) at which point she will get the government bonus of 25% on the entire £8,000 – a lovely £2,000.
The transfer is also worth doing because if you end up with both an HTB Isa and a Lisa, you’ll only be able to use the bonus on one of them to spend on your property. Obviously though it isn’t right for some people, especially those outside the age range. Those buying in a hurry should also potentially stick to HTB because the LISA must be held for at least a year before it can be used penalty-free for house purchase.
Only contributions to your HTB Isa made before 6 April 2017 (when the Lisa started) can be loopholed. If you never heard about it, don’t worry! Both types of Isa are still available so see my blog on the HTB Isa versus the Lisa here. Alternatively, check out our SMM guide to the Lisa here.