EXCLUSIVE: Blow for investors as Nutmeg u-turns on Lifetime ISA transfer rules
Investors who opened the Nutmeg Lifetime ISA on the understanding they could transfer their Help to Buy ISA to the scheme have been left disappointed as the platform’s back-tracked on its promise. Your options explained.
Nutmeg launched its Lifetime ISA on 6 April this year, allowing people to save for their first home and retirement. See YourMoney.com’s Lifetime ISA guide for more information.
At the time, it told customers it was working on a system to allow anyone with a Help to Buy ISA – the government’s flagship first-time buyer scheme to help them onto the property ladder – to transfer the amount to the new Lifetime ISA (LISA) scheme by 5 April 2018.
This date is particularly important for savers with both a Help to Buy ISA (H2B ISA) and a LISA. This is because during the 2017/18 tax-year only, special rules apply to the LISA.
Until 5 April 2018, you can transfer your H2B ISA (valued at 5 April 2017) to a LISA without the amount contributing to the £4,000 annual LISA allowance. The whole amount saved will benefit from the 25% government bonus (though you can only use the bonus from one scheme to help buy a first property).
Therefore, if you transfer your H2B ISA to a LISA by 5 April 2018, you’ll be able to invest up to £4,000 in a LISA and up to £20,000 into a cash, stocks and shares or Innovative Finance ISA.
However, emails and letters sent to customers this week reveal that Nutmeg has had to pull out of this offering. It has more than 7,000 LISA customers and approximately 900 had expressed an interest in being kept up-to-date on the H2B ISA transfer.
Nutmeg said it has become clear that it won’t be able to offer this facility for customers before the 5 April 2018 deadline. It added that the LISA is a new product and it was trying to find ways to enable the system to allow H2B ISA transfers into LISAs,
The options for Nutmeg Lifetime ISA holders
Nutmeg says there are three options for its LISA customers which will be made clear in the emails and letters they are receiving this week:
- Leave Nutmeg. It confirms that customers are free to leave to another provider without any penalty or fees. (See below for a list of alternatives). An important point to note is that if this is the best option, you shouldn’t withdraw the money from the account – instead complete a transfer to avoid any tax implications. Nutmeg said you will be able to use funds contributed in previous tax years to claim the government bonus.
- Continue to save into your existing H2B ISA though you can only claim a bonus from one scheme when buying your first property. You can contribute to a H2B ISA until 30 November 2029 and must claim your 25% government bonus by 1 December 2030. You can contribute a maximum of £12,000, therefore there is a maximum government bonus of £3,000. See YourMoney.com’s Help to Buy ISA guide for more information.
- If you want to continue investing in your Nutmeg LISA and want to combine it with your H2B ISA, you’ll need to withdraw the money from your H2B ISA and transfer it to your Nutmeg LISA. However, check with your current provider whether there will be a penalty for early withdrawal from the H2B ISA. Also, this move means that the contribution will count towards your 2017/18 LISA allowance.
Lifetime ISA providers – do they allow Help to Buy ISA transfers?
There are currently four providers offering a stocks and shares LISA – AJ Bell, Hargreaves Lansdown, Nutmeg and The Share Centre. Skipton Building Society is the only provider offering a cash version of the LISA and Foresters Friendly Society offers a With Profits LISA.
When contacted, all confirmed they do accept H2B ISA transfers into their LISA product. Further, Foresters Friendly, Hargreaves Lansdown and Skipton added they will accept LISA transfers from any Nutmeg LISA customer wishing to leave the platform.
AJ Bell says at the moment it can’t accept straight LISA transfers so a Nutmeg customer can’t transfer to it and then transfer their H2B ISA. However it adds that this is something it is working on.
The Share Centre confirms it is able to accept transfers of Nutmeg LISA customers. If transferring LISA to LISA, there are no penalties. If transferring a Nutmeg LISA to another Share Centre ISA, there is no penalty but it adds that under the 2017/18 LISA rules, savers won’t receive the government bonus on the amount invested.
If you’re considering transferring your H2B ISA into a LISA, see YourMoney.com’s Should I transfer my Help to Buy ISA to a Lifetime ISA? for more information on the advantages, disadvantages and who this works particularly well for.
What does Nutmeg say?
Its statement read: “We made attempts to build this service for the first six months of the 2017/18 tax year. We set ourselves a deadline of 5 November to be completely confident we could deliver this for customers. Unfortunately, we just couldn’t deliver the kind of certainty we were comfortable with. We wanted to be decisive and give customers enough time to make other arrangements for their Help to Buy ISA before the tax year-end deadline.”
A spokesperson, added: “Rather than keep our customers waiting in hope, we wanted to inform them sooner rather than later so that they can take action.
“We’re really disappointed that we are not able to deliver this system for our customers and we’re sorry for the inconvenience it may cause.”