How to Claim a £1100 ISA Bonus Using Little Known Loophole

The end of the tax year is a little over 2 months away, on April 5^th. And that is the window of opportunity that prospective first time buyers paying into a Help to Buy ISA to boost their funds to the tune of a £1100 ISA give away. A loophole means that by moving a Help to Buy ISA into a Lifetime ISA before April 4^th, with the deadline shorter with some Lifetime ISA providers, an additional government top-up bonus can be activated.

Lifetime ISAs were launched last year and money saved into a Help to Buy ISA before the launch date can be transferred before the end of this year into a Lifetime ISA. Both ISA varieties are eligible for a 25% government bonus towards the deposit on a first property, though a Lifetime ISA can also be kept until retirement. Adding the maximum Help to Buy allowance from last year to a Lifetime ISA, increasing the annual LISA ceiling as a one-off, means gaining an additional maximum bonus of £1100.

The transfer rules are as follows:

• Help to Buy ISAs were last valued on 5 April 2017.
• This value, plus any interest added since, can be transferred to Lifetime ISA allowance at any time over the 2017/18 tax year.
• The value of the Help to Buy ISA will not count towards the £4000 Lifetime ISA annual savings limit.
• A 25% bonus will be paid out on the value of the transfer.
• Only one transfer from a Help to Buy ISA to Lifetime ISA can be made without it being considered within the LISA’s £4000 annual allowance.
• Contributions made into a Help to Buy ISA after 5^th April 2017 WILL count towards the annual Lifetime ISA allowance and must be transferred to a Lifetime ISA.

As well as taking advantage of the top up bonus, there are other pluses to transferring a Help to Buy ISA to a Lifetime ISA. The government bonus on Help to Buy savings is only received after a deposit is made on a first property. The 25% bonus is paid on monthly LISA contributions so goes towards compounding interest or returns. While Help to Buy ISAs are cash ISAs only, LISAs can also be used for investing online in funds, equities and bonds if held with on online stock broker. The generally much stronger returns investments historically provide compared to interest rates, particularly with interest rates at historic lows at present, also mean the value of a LISA should increase much faster. And finally, LISA funds can be withdrawn up to 90 days before completing on a first property purchase so, unlike a Help to Buy ISA, the top up bonus can contribute towards the deposit.

There is one caveat though. Anyone planning on buying a first property in the next 12 months should NOT transfer their Help to Buy Isa into a LISA. A Lifetime ISA needs to have been active for 12 months before the first bonus is paid, on the entire year’s savings. After that point bonuses are paid on monthly contributions. So no bonus will be received on LISA holdings if the account is less than a year old.