Lifetime ISA – What you need to know
As announced in the 2016 March Budget by George Osborne, the new Government Lifetime ISA will be available from 6th April 2017.
The Lifetime ISA (commonly referred to as the Lisa), is a tax-free savings account targeted towards ‘the next generation’ which provides you with a 25% government bonus. It can hold cash, stocks and shares qualifying investments or a combination of both.
You can save up to £4,000 a year and continue to pay into it until you reach the age of 50 which could theoretically net a £32,000 bonus for an 18 year old paying the maximum amount every year up to the age of 50. Once you have reached age 50, the account can stay open but you cannot make any more payments into it.
These funds must be used to buy your first home (with a value up to £450,000) or kept until age 60.
To open a Lifetime ISA, you must meet the following requirements:
- You must be aged 18 or over but under 40.
- You must be a resident in the UK or be a Crown Servant or the spouse or civil partner of a Crown Servant.
If you withdraw the funds before the age of 60, you will have to pay a withdrawal charge of 25% of the amount you withdraw, with the exceptions being terminal illness with less than 12 months to live or transferring to another Lifetime ISA with a different provider. If you die, your Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge.
Your Lifetime ISA savings and bonus can be used towards buying your first home without incurring the withdrawal charge, however your account must be open for at least 12 months before you can withdraw funds from it to buy this home.
If you already have a Help to Buy ISA, you can transfer those savings into your Lifetime ISA or you can continue to save into both, but you can only use the bonus from one to buy your first home. Some may wish to transfer the balance of your Help to Buy ISA if the amount isn’t more than the £4,000 limit. While it is possible to invest into both your Lifetime ISA and Help to Buy ISA, the government have stated savers cannot use the bonus from both towards their first home, however it is possible to ‘roll’ the savings from the Help to Buy including the government bonus into your Lisa, which can then be used for the deposit on a home.
‘Money Marketing’ conducted a survey in which 4,157 adults were questioned. The results showed that 14% knew about the ISA but did not plan to use it and 66% had not heard about the initiative.