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Could you take advantage of the ISA loophole that’ll be closed by 6th April

If you are currently saving into a Help to Buy ISA, you could increase what’s in your pot with a £1,100 bonus, if you transfer into a Lifetime ISA (LISA) before this tax year is out.

A loophole means that money saved before the LISA was launched last year can be moved before the end of the tax year without breaching the product’s limit of £4,000. Savers can move the cash over and claim an additional government bonus. That extra £100 comes from calculations using the best Help to Buy ISA rate currently offered – 2.5 percent with Barclays.

Both ISAs offer a bonus from the government of 25 percent, if the money is used to buy your first home. But the LISA has a couple of tricks up its sleeve: (1) money saved in a LISA can be used as part of a deposit, while the bonus for a Help to Buy ISA is only paid out on completion, and (2) it can also be used for retirement savings, so, if you don’t use it purchase a house, it basically becomes a pension.

The issue, of course, with government schemes designed to give you a leg up onto the housing market and into debt is that they don’t solve the real problem: the housing shortage. Stoking demand with these financial products will just continue to push up prices, while reams of (often utterly pointless) planning laws, poorly-incentivised councils, punitive taxes, a bloated welfare state and political will to keep property a lucrative asset (for those baby boomer votes) stop us building. Hardly a recipe for success.

There’s a good story here which highlights the clumsiness of schemes like the LISA. In short, it’s frequently hijacked by people in their late 30s who may already own property and have a pension, but they’ve got the extra cash to shield from the taxman and are, like everyone in today’s financial environment, looking for yield. Unfortunately, this is not who the product was designed for!

 

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