The Lifetime ISA is set to launch on 6 April 2017, and is intended to help younger people save up to buy a home or increase their pension. Here we explain the things you’ll need to know about the government’s new scheme.
The proposed tax-free savings account will be able to hold cash, stocks and shares qualifying investments, or a combination of the two.
However, it is expected that only a small number of banks will offer the Lifetime ISA, as many banks are yet to decide on their terms and conditions. Lifetime ISAs are believed to be quite complex and will require thorough both consumers and banks to do a fair amount of research and preparation before making an agreement.
Those who take out a Lifetime ISA will be able to save up £4,000, towards which the government will contribute 25 per cent. Although you can add more than £4,000 into the ISA, it will not receive a government contribution.
Essentially for every £4 you save into the account you will receive a £1 bonus from the government, so you could receive £1,000 from the government each year if you save the full £4,000 into the ISA.
In the first year of the plan, the bonus will be paid annually, but will be paid every month from the 2018/19 tax year onwards.
Bonuses can be received up to the age of 50, with the maximum possible bonus being £32,000 under the current rule. This can only be reached if you open a LISA on the day you turn 18, and save £4,000 every year until you are 50.
Unlike the Help to Buy ISA, which limits you to saving £200 a month into the ISA, you can save as much as you want each month.
In order to be eligible for a Lifetime ISA, you will need to be aged between 18 and 39 years on 06 April 2017.
The account can only be opened by individuals, meaning that you cannot open one with a partner. However, you can still open one each and use the money to purchase a property (provided you are both first-time buyers) which would have the same effect as doubling your reward bonus.
First-time buyers can use the money towards a deposit on UK residential properties costing £450,000 or less. This cap is higher than the Help to Buy ISA limit, which is £450,000 for London properties but only £250,000 outside of the capital.
For you to be able to qualify for the government bonus when purchasing a house, the Lifetime ISA must have been opened at least 12 months ago. The property must also be purchased with a mortgage, it must be the only home you own, and it must be where you intend to live.
The Lifetime ISA does not have to be used for buying a house; it can be used to save money for retirement. Should the Lifetime ISA be used for this purpose then money can be withdrawn after the age of 60, without receiving a penalty.
However, should you withdraw money before you are 60 years old, then you it will be subject to a 25 per cent ‘exit charge’ on the entire pot.
