Lifetime ISA vs Help to Buy ISA - Finding the right one for first-time buyers

With the Help to Buy ISA scheme closing to new applicants in November 2019 and the emergence of the Lifetime ISA, we look at the similarities and differences between the two to help you decide which one is right for you. 

Which one is right for you?

Since December 2015, the Help to Buy ISA has been helping people save up a deposit to buy their first home. With a 25% government bonus available on all the money you put in, the returns are often better than putting the same amount into a cash ISA.

Then, in April 2017, the Lifetime ISA was launched. Both forms of ISA work in a similar way but with some fundamental differences. If you manage your finances well, either can be a great way to make your money go further. But which is best for you? We look at the similarities and differences and provide some different scenarios to help you decide which ISA is best for you.

What’s the difference between a Lifetime ISA and a Help to Buy ISA?

For first-time buyers, Lifetime and Help to Buy ISAs have essentially the same purpose – to help them save money for their first home, by providing a 25% government bonus. In the case of Lifetime ISAs the account can also be used towards retirement earning the same 25% bonus. But, depending on your situation, you might find that one ISA is more suitable for you than another.

Below you will find a breakdown of the two products and their key differences.

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Lifetime ISA
Help to Buy ISA
Who can open one? Anyone living in the UK aged 18 to 39. Anyone living in the UK who is a first-time buyer aged 16+
What's the most I can save in a Lifetime ISA in one tax year? Invest up to £4,000 in a tax year, as a lump sum or spread the payments out however you like. Invest up to £1,200 when you first open the account and then up to £200 a month after that. The total you can save in your first year is £3,400. After that you can save a maximum of £2,400 a year.
How much can I save in total? You can save a maximum of £128,000 provided you open the ISA when you are 18 and put in £4,000 every month. You can save as much as you like (until the scheme ends) but you will only receive the government bonus on savings of up to £12,000.
How long can I save for? 32 years - You can invest between the ages of 18 and 50. You can invest until the scheme closes on 30th November, 2029.
Can I invest as well as save? Yes, you can have a Cash Lifetime ISA or a Stocks and Shares Lifetime ISA No, Help to Buy is cash only.
What's the maximum bonus I can receive? £32,000 (If you've saved for 32 years). £3,000 (if you've saved £12,000).
When is the bonus paid? Monthly, when qualifying payments have been received. When it's confirmed that the property purchase will go ahead.
What can the Lifetime / Help to Buy ISA be used for? It can be used for a deposit or the mortgage on your first home, or withdrawn when you reach the age of 60. It can only be used for the mortgage deposit, not the exchange deposit. The government bonus will only be paid once the house purchase is complete.
What's the maximum property price I can buy? The maximum property price is £450,000 anywhere in the UK. The maximum property price is £250,000, or £450,000 in London.
How quickly can it be used? 12 months after subscribing. Once you've saved at least £1,600. If you use your maximum allowance this will take 3 months.
Can I withdraw money for any other reasons? Yes, but you will receive a 25% penalty fee for the amount withdrawn. (Reduced to 20% for withdrawals from 6 March 2020 to 5 April 2021)* Yes, but you won't receive the government bonus and may not be able to then put the money back in if it exceeds the £200 monthly limit.
Can I transfer to another ISA provider? Yes, but your allowance will stay the same. Yes, but your allowance will stay the same.
Can I have more than one? Yes, but you can only subscribe into one each tax year. No, you can only have one.

Which one should you get?

The type of ISA you need depends on your circumstances, so we've put together some scenarios to help you decide which ISA is right for you.

I already own or have previously owned a home.

If you are already a home owner or have ever been in the past, even if it was in another country, you can't open a Help to Buy ISA.

You can open a Lifetime ISA but you will not be able to access your savings without paying a 25% government withdrawal charge until you reach the age of 60. *This charge was reduced by the government to 20% as a response to the coronavirus pandemic. The reduced charge is only applicable on withdrawals made between 6 March 2020 to 5 April 2021, when it will return to 25%.

I need to buy a property quickly

The Help to Buy ISA allows you to use your savings for a new home after you've saved £1,600, which can take as little as 3 months. You'd need to invest the maximum £1,200 when you open the ISA and then pay in £200 in month 2 and 3. Once you've done this, you'll receive a government bonus of £400 to put towards your new home.

Lifetime ISAs, on the other hand, can only be used after 12 months of saving. So if you want to buy a property within the next few months, a Help to Buy ISA could give you the short term boost you need.

I think I'm going to buy a home but I'm not 100% sure.

Buying your first home is a huge decision, and it can take a long time to save up. If you decide to get a Help to Buy ISA to help you save, you will only be able to use that money for your first home. So if you open a Help to Buy ISA and then, 2 years down the line decide you want to use the money for something else, you will lose the opportunity to claim the 25% government bonus and the potential to have invested that money in something that provided greater returns.

On the other hand, if you open a Lifetime ISA and later decide not to buy a property, you can still use the money to help you with your retirement. When you reach 60 years old, you can withdraw the money in a lump sum, including your 25% government bonus, and use it for whatever you want.

So if you aren't absolutely sure you're going to use the money for your first home, but you are able to lock your savings away until retirement, a Lifetime ISA could give you the flexibility you need.

I'm over 40 and a first-time buyer.

Lifetime ISAs are only for people aged 18-39. However, you are still eligible for a Help to Buy ISA, provided you open one before November 30th 2019.

I'm 16-17 and a first time buyer.

Lifetime ISAs are only available for people aged 18+, so if you're 16 or 17 you can't open one. Instead, you can open a Help to Buy ISA and start putting money into that. When you turn 18, you can then transfer this into a Lifetime ISA if you wish, subject to the Lifetime ISA annual limit.

Transferring into a Lifetime ISA may use up some or all of your £4,000 allowance for that tax year

Frequently asked questions

Yes, you can hold both types of ISA at the same time. However, you can only use the government bonus on one of them when you're buying your first home.

If you did have both, depending on how much you have saved, you could use the bonus from your Help to Buy when buying your first home and then use the bonus from your Lifetime ISA to supplement your pension when you turn 60.

Yes, you can transfer a Help to Buy ISA into a Lifetime ISA, subject to the Lifetime ISA limits. The transferred amount will still qualify for the government bonus. 

Yes, you can open a Lifetime ISA alongside any other ISAs you may hold (cash, stocks and shares, help to buy or innovative finance). But be careful not to exceed the overall annual ISA subscription limit of £20,000, which a Lifetime ISA counts towards.

For more information on Lifetime ISA rules, visit our page on Lifetime ISA rules, rates and limits.

Need more information? View our full list of LISA FAQs