I’m using mine as an overpayment option for my mortgage. Part of a bigger overall plan, I’ve just got to be content that I won’t pay off the mortgage before then.
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Stocks n Shares ISA
- Thread starter Fletch
- Start date
Edinburgh Black Cat
Striker
Your LISA? How does that work?
So let’s say mortgage is £800, but I want to pay £1000, rather than pay it to the mortgage & save 2% or less on the mortgage interest, I’ll pay it into the LISA & get a £50 bonus (25%) every time I pay in. At that point I’m 23% better off on the money I’ve put in. I’m 37, so have minimum 23 years until I can draw down on it penalty free (& tax free). As I’ve got 23 years I’ve got plenty of time to let investments do it’s thing, 7%-9% is easily achievable on what I’d consider medium risk portfolio, so comfortably making more money than save by overpaying my mortgage. I’ll probably go higher.
Upshot is, the LISA contributions move up at a much faster rate than the mortgage balance would go down.
The payoff I’ve got to have is I can’t access the money until 60 to make the final payment off the mortgage. I’m comfortable with that. It’s all part of the long term plan. If things go well, I’ll have the money to pay off the mortgage then some tax free cash to spend. I haven’t done my final sums yet as I’ll be remortgaging in the next year or so, so I’ve only got rough figures in my head. What I’ll do is review it yearly based on how mortgage rates are moving & how much my contributions are & the investment performance.
However, I’m as sure as sure can be, I’ll have a pot of money much bigger in the LISA than I would have had if I’d have overpaid the mortgage.
I think lots of people take the term pension & LISA literally. All it is, is another vehicle to receive a generous bonus that I can’t access until 60. I can spend the money how I like. If I’ve got enough to supplement my income, it means I dint have to pay tax on pension drawdown. Or, I might just go mental with it. If it was actually for a pensionable income, there’s no real benefit (for me) to use the LISA. As it is, it’s handy to keep one pot of money from another.
As an aside, I’m going to open a LISA in my wife’s name too. Anybody who’s under 40 should open one with £1. You’ve got until 50 to contribute, it just means there’s another option for us should we want a long term savings plan separate to retirement planning. Worst case scenario, we don’t use it.
arthursboy
Striker
With a stocks and shares ISA, do I need to remove any excess money over the £20k ?
For example £20k has made approx £3k
The profit will be tax free, but does it have to be paid in this tax year so I can reinvest again the max amount next year, if that makes sense ?
For example £20k has made approx £3k
The profit will be tax free, but does it have to be paid in this tax year so I can reinvest again the max amount next year, if that makes sense ?
Nope. All profit is tax free and you can add an additional £20k each tax year.
arthursboy
Striker
Sorry if I’m thick
So I’ve got £20 invested, I can also invest another £20k ?
So in total £40k invested over 2 years and all profits are tax free?
I thought I could only invest £20 at any one time , so withdraw profits and start again?
Nah mate, it’s just the amount you put in that’s limited to £20k. Any growth you have doesn’t count towards that £20k allowance. You don’t have to withdraw profits & start again.
Yip
arthursboy
Striker
Thanks
spitfire
Striker
So when you pull it out, do you get taxed on it or have you already?
No tax when you withdraw from stocks and shares ISAs.
Don't take any profit unless you have to as you can never put it back in once it's out.
arthursboy
Striker
I totally got it wrong, the last 12 months today’s it’s made £3244 on £20k
I assumed I had to withdraw it (profit) within this tax year to get it free of tax implications
But I can let it roll over, need to see a bloke or woman with a calculator to get some advice.
Edinburgh Black Cat
Striker
No, you don't need to remove it. The £20k limit is how much you can add each year. How much it's worth after that doesn’t matter.
42
Striker
You're allowed to deposit £20k each tax year. That's all you need to know. All gains are tax free, and can remain in ISA as long as you want.
It’s a tax free vehicle providing you stuck to the input limits, so currently you can drop £20k a year in, which typically you’ve already paid tax on. Owt it makes can stay in and each tax year you can add up to another £20k in. You can take out whenever you want, but once it’s out it’s out, if you want to put it in again it counts against that current years £20k limit.
Whilst it all sounds like clover, the flip side of course is that you could potentially lose some or all of it if the share prices collapse.
Edinburgh Black Cat
Striker
Interesting. A bit like an endowment mortgage but with a tax free bonus.
If you don't need it just let it ride. If you have withdrawn it already it is a lesson learned but at least you got 3k in your pocket!
Obviously I’m taking a risk, because nobody ever truly knows where investments will move to, or mortgage interest rates, or my future circumstances, however if you pull it back to the basic principles of will I make more or save more, the answer is pretty clear.
Loads I know overlay their mortgage & it’s the emotional attachment of the big debt they have. I’ve got that to a certain degree, but can get my head around I’m paying off my mortgage in the LISA rather than paying it off in the actual mortgage. I’m also comfortable it’s a 20yr+ plan.
That’s not well worded mate. You can take money out of your isa & replace it from Apr 6th. Maybe not an efficient way of doing stuff, but you aren’t completely restricted.
Cash ISAs (I know that’s not the subject) you can take out & put back in in the same tax year as long as the sum of deposits & withdrawals isn’t above £20k
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Yeah, I did think that after I read it back, Flared Hicks gave a better written example of what I meant a few posts after mine thankfully!
arthursboy
Striker
No it’s still sitting there, I will be looking to invest more but cautious this time.
In April last year stock market was on its arse I thought it could only go one way long term and it’s paid off.
But this time will be less risk
