A lifetime ISA can be a great tool to save for your first home, but an ISA can give you more flexibility. How can you decide which is right for you?
Let's get one thing clear before we start: you can get stocks and shares lifetime ISAs, like the lifetime ISA offered by OneFamily.
In this article, when we refer to "stocks and shares ISAs", we're talking about non-lifetime ISAs. These aren't designed specifically to help young people buy their first home, unlike lifetime ISAs.
Let's look in more detail at the two products.
Put simply, if you're opening an ISA in order to save either to buy your first home or for life after 60, a lifetime ISA might be the right product for you and you'll get a 25% bonus on everything you pay in (you can pay in up to £4,000 each tax year).
If you have any other savings goals, an ISA might be more appropriate.
You can open both, for example if you want to save up for your first home and have other savings goals in mind.
What is a lifetime ISA?
A lifetime ISA is a tax-free savings or investment account designed specifically to help young people buy their first home or put money away for life after 60.
It can be opened by UK residents under 40 and you're allowed to pay in until you turn 50.
Lifetime ISAs come with a 25% government bonus on everything you pay in. As you can put up to £4,000 into a lifetime ISA each tax year, you can get up to £1,000 each tax year.
The drawback is you're restricted on what you can use your lifetime ISA for.
Before you turn 60, you can only use the money in your lifetime ISA to buy your first home, which must cost no more than £450,000. If you take money out of a lifetime ISA for any other reason before age 60, you’ll pay a 25% government withdrawal charge on the money you take out.
This fee works out as more than the bonus you received, which means you lose the bonus and some of the money you put in. So, it's a good idea to check the lifetime ISA rules before opening one.
Lifetime ISAs are available as either cash or stocks and shares accounts. OneFamily's Lifetime ISA invests in stocks and shares.
What is a stocks and shares ISA?
A stocks and shares ISA is a tax-free investment account, meaning you won’t pay any tax on the money you take out, no matter how much it grows.
Sadly, there's no government bonus with this type of ISA but there aren't any restrictions on how you can use the money.
Stocks and shares ISAs invest your money with the aim of growing it.
You can pay in up to £20,000 each tax year. There’s no limit to how many ISAs you can have, but your allowance is shared across all of them, including a lifetime ISA, if you have one.
Get up to £1,000 extra towards your first home deposit every year with a OneFamily Lifetime ISA
What are the similarities between lifetime ISAs and stocks and shares ISAs?
As they’re both ISAs, they share a few common traits.
- Both are tax-free accounts, meaning you won’t pay tax on the money you take out, regardless of growth.
- They share your annual ISA allowance. Lifetime ISAs have their own allowance of £4,000, but any money you pay in also counts towards your overall £20,000 allowance.
- Stocks and shares ISAs and lifetime ISAs can be opened from age 18. If you have a child trust fund or junior ISA with OneFamily, you can choose to reinvest in both or either type of ISA when your account matures.
What are the differences between lifetime ISAs and stocks and shares ISAs?
Lifetime ISAs and stocks and shares ISAs are designed to suit different savings goals.
| Lifetime ISA | Stocks and shares ISA | |
|---|---|---|
| At what age can you open one? | Between the ages of 18 and 39 (inclusive). | At any age, from age 18. |
| How long can you pay in for? | Until age 50. You'll get the government bonus on everything you pay in until this time. | There's no age limit on how long you can pay into an ISA. |
| Is there a government bonus? | Yes, there’s a 25% government bonus on everything you put in. You can get up to £1,000 each tax year from your government. | No. |
| When can you withdraw the money and what can you use it for? | You can use your lifetime ISA to buy your first home or to put money away for life after 60. You’ll pay a 25% government penalty fee if:
| You can withdraw from an ISA any time, and you can use the money for anything you want. Different ISA providers might have individual withdrawal conditions. |
| How much can you put in? | Up to £4,000 each tax year, as a part of your £20,000 annual ISA allowance. | Up to £20,000 each tax year, split between all of your ISAs. |
Which type of ISA is right for me?
Ultimately, the right ISA for you will depend on what your goals are:
Our Stocks and Shares ISA and Lifetime ISA both invest in stocks and shares, so the value is likely to go up and down over time. This is normal for this type on investment, but it means there is a risk you could get back less than you put in if you withdraw at a time when the value is lower.
