In his 2016 Budget, Chancellor George Osborne announced the introduction of a Lifetime ISA. What is this new type of ISA and how does it work?
The key facts and features of the Lifetime ISA (LISA) include:
Fact 1: It will be launched on the 6th April 2017.
Fact 2: You have to be between 18-40 to be eligible to open a LISA.
Fact 3: You can save up to £4,000 into a LISA each tax year, at any point and with no monthly cap.
Fact 4: If you are between the age of 18 and 50, any savings you put into your LISA in a tax year will have a 25% government bonus added (up to £1,000) at the end of that tax year.
It means that if you start saving into a Lifetime ISA at 18 and contribute to the maximum allowed each year until your 50, you will have saved £128,000 and received a total government bonus of £32,000, making your Lifetime ISA savings £160,000 (plus any interest earned and/or growth in that time).
Fact 5: You can continue to save into your LISA after age 50 but you will not be eligible for the 25% government bonus.
Fact 6: You can have more than one LISA in your lifetime but you can only pay into one Lifetime ISA in any given tax year.
Fact 7: Each tax year you can save into both a Lifetime ISA and another type of ISA, such as a cash ISA and/or a stocks and shares ISA, as long as the total amount saved in all your ISAs does not exceed your annual ISA allowance.
Fact 8: 12 months after opening your Lifetime ISA, you can use your LISA funds (including the government bonus) to buy your first home worth up to £450,000.
Fact 9: You can withdraw money from your LISA for purposes other than purchasing your first property but, if you are aged under 60, you will not get the government bonus (nor any interest or growth on the bonus) and a 5% charge will be payable.
Fact 10: If you are age 60 or above, you are free to make full or partial withdrawals from your LISA, for any reason and at any time, tax free and with no charge. Any funds that are left within your LISA will continue to receive tax free growth/income.
Full details about the Lifetime ISA are available on www.gov.uk
Lifetime ISA vs ‘Help to Buy ISA’
Availability: The Help to Buy ISA is only available to first time buyers. It will continue to be available until the 30th November 2019 for new savers, and will be open to new contributions until 2029.
Contributions: With the Help to Buy ISA, you are limited to £2,400 per year in contributions in addition to the £1,200 opening amount. The Lifetime ISA allows more scope for a higher level of contributions.
Transferability: During the 2017/18 tax year only, you will be able to transfer an existing Help to Buy ISA into a Lifetime ISA and receive the government bonus on those savings.
Bonus: First time buyers will not be able to use a bonus from both a Help to Buy ISA and a Lifetime ISA when purchasing a home. As one bonus will be forfeited, a transfer is preferable.
Growth: An added benefit of the Lifetime ISA is that the bonus is added annually rather than only when you purchase a property. This means you benefit from interest growth on the bonus element, as well as your own contributions.