Earlier in the year Chancellor George Osborne announced the launch of the new Lifetime ISAs which will be available from 6 April 2017. If you are saving for your first home or for your retirement, then the Lifetime ISA is geared towards you and could help make the most of your tax allowances from your savings.
It’s all too easy to forget about retirement planning when you are busy working, looking after the family and have many other more immediate financial concerns. Once you have bought your first home however, the Lifetime ISA is supposed to provide some incentive to continue putting money aside for later years in your life.
Are you eligible?
To be able to apply for a Lifetime ISA you must be between 18 – 40 years of age. You must also be in a position to save up to £4,000 a year.
If you already own a property and are over 40 you will not be able to apply for a Lifetime ISA and we’d recommend looking to invest in a personal pension instead.
If you do not own a home yet and are over 40, we would advise looking at the Government’s Help to Buy Scheme or opting for a high interest saving’s account.
What will you gain?
You will receive a 25% bonus on your savings every year from the Government, which could represent £1,000 if you opt to invest the maximum. This means that you will benefit from tax-free growth the moment it is added. You’ll receive the bonus until you reach 50. If you haven’t purchased your first home yet then you can use your Lifetime ISA savings to put towards this or if you are already a homeowner, wait until you are 60 to be able to withdraw your savings for your retirement.
The Government is currently looking at the best options for those wishing to save over the £4,000 amount and how to continue saving to the ISA between ages 50-60.
Points to note
Any contributions must be within the annual £20,000 (2017/18) ISA limit
- The 25% bonus paid by the Government will be paid on contributions of up to £4,000 per tax year
- There is no monthly limit on contributions which can be paid into a Lifetime ISA
- Individuals can contribute to the ISA and receive the annual bonus until they are 50
- Savings from other ISAs can be transferred to a Lifetime ISA which will not affect the £20,000 annual ISA contribution limit
- The maximum amount a saver can contribute to the ISA during their lifetime is £128,000
- The 25% Government bonus payments can mean an additional £32,000 can be added to the ISA during its duration
- The savings and the bonus are also subject to investment growth
- Individuals can save up to £15,240 a year (2016/17) across all types of ISAs
- You cannot contribute to a cash ISA and a Help to Buy ISA in the same tax year
- he same IHT rules apply as to other ISAs
- The ISA can be inherited by a spouse or civil partner and invested into their own ISA in addition to their own allowance
If you are using your Lifetime ISA savings to buy your first home, then you can withdraw your funds after 12 months. If you are using your Lifetime ISA funds for retirement, then you can withdraw them after your 60th birthday.
If you happen to be diagnosed with a terminal illness you are allowed to withdraw your savings earlier.
If you wish to withdraw fund early then the following will apply:
- 5% charge for early withdrawal
- No bonus or interest will be paid on accrued savings
To see full details of the withdrawal restrictions, view the Withdrawals section of this Government factsheet.
In order to open a Lifetime ISA you’ll need to apply via a bank, building society or other ISA manager from April 2017 in much the same way as you would currently open any other form of ISA, take along the relevant documentation and begin investing regularly.
It is fine to open a Lifetime ISA if you have other types of ISAs already and you can also open more than one Lifetime ISA but you can only pay into one of them in any given tax year.
If you are still unsure if the Lifetime ISA is right for your own personal financial situation, then get in touch for a free no obligation consultation and we will walk you through the best options for you.