Lifetime ISA Or Buy-To-Let Investment

The Government has introduced a new lifetime tax-free ISA saving account to help people under the age of 40, either save up for their first home or for their retirement. The new lifetime ISA will be available from April 2017 and is set to encourage people to put aside £4,000 per year which will be rewarded with a £1,000 government bonus. On the surface, the new ISA seems like a good idea, but would it be a better investment financially than investing in a small buy-to-let in Greater Manchester? We have dived into the figures to find you the best deal. (1)

How the Lifetime ISA Works

It is important to fully understand how the new lifetime ISA works before you decide to open an account. Like any savings account, there are terms and conditions and small print to consider. The new lifetime ISA is only available for people in the UK aged between 18-40. For every £4 you save the government will theoretically give you a top up of £1. If you open a lifetime ISA at the age of 25 and are able to save £4,000 per year until you are 50 years old, taking into account the government bonus and a five per cent annual growth, you would retire at 60 with a pension pot worth over £416,000. It is important to note that once you reach 50 years old, you will no longer earn a government bonus from the money you save per year. (2)

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You don’t have to wait until you are 60 to feel the benefits of this new scheme either. If you are planning on buying your first home, you will be able to withdraw your lifetime ISA savings tax-free at any time. This will potentially help thousands of people in the UK finally get their foot firmly on the property ladder. In addition, if you are purchasing a home together, you will be able to combine your savings and your partner’s to secure the property.

Exceptional Circumstances

Apart from saving for a retirement at 60, or purchasing your first home, the only other circumstance that you will be able to withdraw your savings, without facing charges, would be if you were to, unfortunately, fall terminally ill. In this case, the government will waive any charges or tax which would normally be charged to early withdrawals. (2)

If you decide at any point that you would like to withdraw some or all of your money from the account, you will be charged unless it is for the purchase of a first home up to the value of £416,000 or you have reached the fine old age of 60.(3)

I Already Have an ISA Account

For those who already have an ISA or if you opened the government’s Help to Buy ISA, in order to save for a first time home, you will be able to move your saving into the new lifetime ISA but at a capped £4,000 per year. Like with any ISA transfer, any money you transfer from a previous year’s ISA does not affect your current tax year contribution. Basically, if you decide to transfer £4,000 from your Buy to Let ISA into your new lifetime ISA, this won't affect the amount of money you are able to save per year in the new savings account. (3)

The new lifetime ISA savings account is a great way of saving money each year to either buy your first home or guarantee yourself a financially safe retirement at 60 years old, but it is not for everyone. What might put off a lot of savers is the fact that people who have a private pension will be able to withdraw their life savings at 55 years old, whereas the new lifetime ISA savers will have to wait five years more to access their full account without being charged a five percent fee. (2)

Securing an Early Retirement through Property

In Chancellor George Osborne’s budget 2016, the UK buy-to-let residential property market has taken a bit of a hit. The Chancellor has proposed an increase in Stamp Duty tax for residential buy-to-let investments in a bid to put off buyers from either investing in property as a new landlord or expanding their existing property portfolio.

However, if you were able to invest in a small buy-to-let investment in order to secure yourself an early retirement you could be better off financially.

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In Greater Manchester, the average HMO, home of multiple occupancies, can be bought for around £110,000 to £140,000. With high rental yields of around 9% and a high demand for modern affordable property from the growing student and young professional market, investing in property in the north of England is becoming increasingly popular. (4)

If you purchased a 3/4 bedroom HMO in Greater Manchester, for £130,000 at the age of 25, you could rent the property out for around £1,700 per month including bills. In 10 years of owning and renting out the property, you could make £204,000 even without increasing the rent over this period. This would enable you to pay off the property itself and even make a profit, depending on the mortgage deal you get. At the end of the day, you would own the property, which would have undoubtedly gone up in price and also have the potential to continue renting it out until you decide to sell it.

Becoming a landlord in the UK would mean you would make you own money without being charged five per cent to withdraw it from a lifetime ISA. In addition, you would have a property that you could live in yourself if necessary.

Lifetime ISA or Invest in Property?

Both the lifetime ISA and investing in the UK buy-to-let property market has its pros and cons and it depends entirely on your personal circumstances as to which you believe would be the best option for you. In our professional opinion, we would recommend those with limited funds and have not yet taken out a pension opt for the lifetime ISA to secure yourself financially with a pot of money that can be used to buy your first time home or guarantee a financially stable retirement. In addition, if you are self-employed you would be better off financially, to take out the new lifetime ISA over a private pension as you would benefit from a government bonus. Previously, self-employed individuals would not receive the same financial bonuses that employees who took a pension would automatically receive, thanks to their bosses paying in as well.

However, if you have the finances in place to afford a small buy-to-let investment, you might be better off financially by investing in property and benefiting from the high rental yield opportunities along with the demand for modern and affordable accommodation. With any financial decision, we highly recommend you take the time to look into all possible outcomes and weigh up the risks surrounding each choice.

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If you are considering investing in property over a lifetime ISA, to secure yourself an early and financially strong retirement please don’t hesitate to contact our team of experts by emailing


1. Financial Times - How does the UK Budget 2016 affect me?

2. This is Money - Pensions versus Lifetime ISAs

3. Money Saving Expert - Lifetime ISAs

4. The Heaton Group - A first class ticket to Northern property

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