The Lifetime ISA – what you need to know

George Osborne’s Lifetime ISA (LISA) will launch next April – giving savers under 40 a new long-term savings option. We know the LISA has been designed to help savers buy their first home or save for retirement, but will it be suitable for you? Here’s what you need to know.

How will the LISA work?

  • It can be opened from 6 April 2017 by anyone between the ages of 18 - 40
  • Contributions of up to £4,000 per tax year made before a person’s 50th birthday will attract a 25% government bonus. This means that if a person makes a contribution of £4,000 in a tax year, they will receive a government bonus of £1,000 at the end of the tax year. Similarly, a contribution of £1,000 in tax year will result in a £250 bonus. The ISA manager will claim the bonus and add it into the LISA account. The ISA fund will also benefit from any interest or growth from the chosen investment option(s)
  • Any savings into a LISA will be counted as part of the overall ISA limit (which will be increased from £15,240 to £20,000 from 6 April 2017)

 

The government want to make it as easy as possible to contribute additional amounts on top of the amounts eligible for a bonus. So, it has said it will investigate ways 

for savers to contribute more than £4,000 per year before age 50 or to keep contributing after age 50 if they want to even though any such contributions won’t attract a bonus.

Saving for a first home

LISA savings, including any investment growth and government bonus, can be used towards a deposit on a first home (not a buy-to-let) worth up to £450,000 in the UK. This can be done at any time after 12 months of opening an account with the money being paid direct to the person or company dealing with the house purchase.

It won’t be possible for an individual to buy a first home with someone else and for them to each benefit from the government bonus from their own LISA, if they’re both eligible.

Saving for retirement

After a person reaches age 60, any full or partial withdrawals from their LISA will be tax-free. Any withdrawal, including the government bonus, made can be used for any purpose – they won’t be restricted to just providing retirement benefits. While LISA savings remain invested, any interest or investment growth will be tax-free.

Other withdrawals

If savings are withdrawn before age 60 (other than to help buy a first home or in circumstances of terminal ill health), the government bonus will be lost as will any interest or growth received on this. There will also be a 5% early withdrawal charge.

 

Savings can be withdrawn in full before age 60, without the loss of the government bonus, if a person is diagnosed with terminal ill-health (based on the pensions definition).

 

If you’d like to find out more, please contact us and one of our Investment team will be happy to answer your questions. You can also respond via the live chat button. 

 

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