NEW ISA LIMIT
From 6th April 2017 the ISA limit will increase to £20,000.
Lifetime ISA
The Lifetime ISA will be available from 6th April 2017 for savers aged between 18 and 40. Any savings made into the plan before age 50 is attained will attract a 25% bonus from the government – provided the funds are used to either purchase a first home or withdrawn after 60 i.e. for retirement. As with all ISAs, funds can be withdrawn without a tax charge.
The maximum contribution will be £4,000 a year with the total maximum contribution to the plan over a lifetime being £128,000 – a government bonus of £32,000 can then be added provided the funds are withdrawn for either of the above events.
Contributions to the Lifetime ISA must be within the overall ISA limit (£20,000 from 2017/18).
Individuals can contribute into a Lifetime ISA alongside a Cash ISA, a Stocks and Shares ISA and an Innovative Finance ISA in one tax year provided they remain within the £20,000 pa limit.
Contributions may continue after age 50 BUT the government bonus will only be applied to contributions made up to the saver’s 50th birthday, i.e. the bonus will be added to the fund at 50 but will be lost if the funds are withdrawn before the saver’s 60th birthday or before their first time property purchase.
It will also be possible to transfer funds from other ISAs to the Lifetime ISA (this includes from the Help to Buy ISA).
Savers can withdraw their funds at any time but will not receive the government bonus and will incur a 5% charge if the withdrawal is not for the purchase of their first property or after they turn 60 (unless they are diagnosed with terminal ill health as per current pensions legislation). The government is also considering whether other specific lifetime events may allow funds to be withdrawn without the loss of the bonus.
A further area of consideration is around whether the saver can ‘borrow’ funds but then fully repay them to benefit from the maximum bonus in the future.
More details on these areas and the final rules are expected in the Autumn following consultation with industry.
Help to Save scheme
The Chancellor has announced a savings scheme to help the lower paid to save, by providing a 50% government bonus on up to £50 of monthly savings. The scheme will start in April 2018 following consultation and will be open to 3.5 million adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit.
The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from a maximum government bonus of £1,200. Funds can be used in any way the saver wishes.
As with the Lifetime ISA there are concerns that this measure could lead to higher levels of opt outs under auto enrolment.
Replacing ISA withdrawals (cash ISA or cash element of stocks & shares ISA)
As previously announced, the ability to make withdrawals from a cash ISA (or the cash element of a stocks and shares ISA) and replace them within the same tax year without affecting annual subscription limits will go ahead from 6th April 2016.
Any ISA investor could potentially benefit now that transfers between cash and stocks & shares ISAs are possible in either direction, ie. a stocks and shares ISA could be transferred to a cash ISA first before making the withdrawal.
Help to Buy ISA (can be rolled over into a Lifetime ISA from April 2017)
The Help to Buy ISA became available from 1st December 2015. Gives 25% tax relief on savings up to £12,000 (ie. £3,000 Government contribution if £12,000 saved). The tax relief is only given when the first home is bought. It’s a cash ISA so an investor can’t invest in another cash ISA in the same tax year as a Help to Buy ISA. The maximum single initial premium is £1,000 plus maximum regular savings of £200 per month. Property values can’t exceed £250,000 (£450,000 in London).
