At the end of each podcast series I do a Q&A session, where I answer questions my listeners have sent in. These are varied, but I try to give as much detail as possible, so I’ve decided to include them here in the next few posts, in case you have any similar queries.
Help to Buy vs Lifetime ISA
Is it worth starting a Lifetime ISA and is it still possible to transfer the savings from the help to buy ISA if you’re not able to afford mortgage repayments?
I have a detailed answer about this topic in an earlier podcast episode, which you can find here. However, to provide a quick answer to this question, I believe LISAs are better than H2B ISAs for the following reasons:
- H2B ISAs are cash only, no Stocks & Shares option, so less potential for long term growth
- H2B ISAs have a lower subscription limit of £200 plus an initial subscription of £1,200 and you can only save a maximum of £12,000
- With H2B ISAs you never see the bonus, it is added on completion of the house purchase and is requested by the solicitor acting for you. With the LISA it is added as you go along, so you get growth on the bonus too
- You can transfer your H2B ISA into a LISA and get the bonus now. Just check the rules on both to make sure you’re doing the right thing
2. What to do With a Windfall
Windfalls can be as much of a headache as a blessing, and depending on the source of the windfall they can carry some powerful emotions with them. Think about it, often a windfall is the result of a bereavement, redundancy or a generous gift and it can be hard to separate emotion from the practicalities of managing the money when it comes, but we must try.
I’ve had experience with clients who inherited shares from a loved one and then retained the shares for sentimental reasons. That makes no sense in the cold light of day, but emotions are powerful.
The first thing to do with a windfall is nothing. There is no rush to do anything at all and it is far better to wait and do things right than do them quick. My belief is that a windfall should simply accelerate what you would ordinarily do with your money. If you have bad debt, clear it down. If doing so would likely take all of the windfall, then there is an argument for doing something with the money that marks the occasion somehow.
So, if the money came from an inheritance and you can’t bear to see it all go against your credit card debt, then buy a little something to remember the donor by. But don’t blow it all on an Audi to remember them by! By marking the event in some way but doing the right thing with the rest, you are still much better off than you would otherwise have been.
Just don’t get back into the debt and in so doing you’ve effectively wasted that money. Use the windfall to start or complete your emergency fund if you haven’t done that yet, then look to invest, but not before.
All that’s happening with a windfall, is that you’re getting a push along the board, like climbing a ladder in snakes and ladders. You jump forward several squares, maybe even a row or two on the board if it’s a big ladder, but the journey and the end result is essentially the same.
Have a mind to things like tax, obviously. If you’re in any doubt about the tax implications of receiving the money then seek professional advice. Most windfalls from lottery or pools or gambling wins are tax-free. Inheritances will come to you tax-paid, but if there’s any doubt, take advice. You can also watch my video on the topic.
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