The Lifetime ISA could help you to buy your first property or save for your retirement – with the added boost of a 25% government bonus.
What is a Lifetime ISA?
A Lifetime ISA (LISA) is a tax efficient savings or investment account, designed to help people aged 18 to 40 save for their first home or their retirement. Just like with any ISA product, growth on your money is tax free. However, this type of ISA has the bonus of government contributions.
If you take out a Lifetime ISA, the government will pay out a bonus worth 25% of what you pay in, up to a set limit, every tax year. ‘Tax free’ means that any interest earned or capital growth, if it is invested in stocks and shares, is exempt from UK income tax. Be aware that tax rules are subject to change.
A LISA can be cash savings that will earn interest, or stocks and shares investing so that you can aim for share growth (or loss, as the value of shares can go down as well as up).
How does the Lifetime ISA work?
• You can put a maximum of £4,000 into your LISA each tax year. You can choose to deposit a lump sum of £4,000 or save as and when you can.
• You will receive a government bonus of 25% monthly (if you have paid in that month)
• The bonus limit is £1,000 per tax year. The max bonus is £33,000 if you open the LISA at 18 and pay in until you reach age 50.
• Once in your account, the bonus counts as money that can earn interest or investment growth/loss.
• Use a LISA to buy your first home, but there are some restrictions (see Am I Eligible For A Lifetime ISA?)
• Lifetime ISAs can be used to purchase property up to £450,000 both inside and outside of London.
• A LISA can be used with other government schemes, such as Help To Buy, however it cannot be used with a Help to Buy ISA.
• You can use a LISA to boost your pension pot. When you turn 60, you can make full or partial withdrawals from your LISA without paying a fee.
You can access your money when you:
– buy your first house, and your account has been open for 12 months
– if you are diagnosed with a terminal illness
– when you reach age 60 if you are using it to boost your pension savings
If you withdraw without meeting any of the above conditions, a withdrawal charge of 25% will apply. For example, if you withdraw £500 you will be charged £125.
Am I Eligible for a Lifetime ISA?
| Eligible | Not Eligible |
|
X Buying to let |
|
X Buying a holiday home |
|
X Reached your £20,000 ISA limit |
|
X Buying a home for more than £450,000 |
Lifetime ISA key facts
• Must be age 18-40 to open a Lifetime ISA but can save into one until the age of 50
• Save a maximum of £4,000 each tax year
• Use it to purchase your first property
• Or use it as a retirement income source
• The Government adds a 25% bonus to what you save
Visit the government website for more information about Lifetime ISAs.
