With help-to-buy the bonus is only claimed after exchange so just reduces the size of the mortgage. It is also worth noting that both Lisa and help-to-buy Isa cannot be used by the same individual.
When the Lisa is used to purchase property, the withdrawal is paid to the account holder’s conveyancer. Once the payment is made the purchase should be completed within 90 days (it may be possible to extend this up to 180 days if required).
If the purchase falls through, the payment must be returned in full to the Lisa immediately. If there are any shortfalls these must be explained by the conveyancer.
There is no requirement for the Lisa to be closed once the withdrawal has been made. It can remain open and accept further subscriptions which can then be accessed charge free from age 60.
Lisa v pension
Once the account holder celebrates their 60th birthday they can access their Lisa funds freely. Like all Isas, withdrawals are tax-free so this can make an attractive alternative to a pension, albeit you have to wait a few years longer to access. Although for the youngest account holders, access to pensions may have caught up to age 60 by the time they get there.
When looking at Lisa v pension, for most this should only really be considered for funds over and above minimum auto-enrolment (AE) contributions. If you opt out of AE to pay into a Lisa the valuable employer contributions are lost.
When looking at Lisa as a vehicle for retirement income, this is unlikely to be a wise move.
The situation when looking at Lisa v pension once AE minimums are met is slightly different though.
The upfront bonus is the same for both products – albeit marketed differently. 20 per cent basic rate relief in a pension or 25 per cent bonus on a Lisa. Either way if £4,000 goes in, HMRC will add an additional £1,000.
When it comes to making withdrawals, only 25 per cent can be taken tax-free from a pension, with the rest subject to income tax, compared to all tax-free from Lisa.
If taxable pension withdrawals are taken within the personal allowance it is possible pension and Lisa will deliver a similar level of income. However, if pension withdrawals are above the personal allowance it is likely the Lisa will be more tax efficient.
However, the situation changes for higher and additional-rate taxpayers, (and intermediate taxpayers in Scotland), as they can claim the extra tax relief whereas the Lisa bonus is a flat rate for all.
Let’s not forget too that pensions are usually outside the estate on death, unlike Isas.
Really the question is not Lisa v pension – as often the answer is both. For those with more than £4,000 a year to invest, a Lisa will not be sufficient. A pension has a much higher annual allowance (£40,000 for most) giving much more potential, but Lisa can be useful for those that have used their pension annual allowance or all their entitlement to higher rate relief or may potentially breach the lifetime allowance.
