Despite a change of Prime Minister and Chancellor since it was announced in March’s Budget, the Government is pressing ahead with the Lifetime ISA (Individual Savings Account) and have announced further details.
The concept is simple, a plan to help you buy your first home or retire; although the rules are more complex.
Using a Lifetime ISA to buy a home
If you plan to use the Lifetime ISA to buy a home, you must be a first time buyer. There are other rules which you need to be aware of, including:
- The purchase price of the property cannot be more than £450,000
- A Lifetime ISA cannot be used to fund the purchase of a buy to let investment
- You can buy a property with your partner, who can also use a Lifetime ISA if they are a first time buyer
Using a Lifetime ISA to retire
If you plan to use the money you have built up to help meet the costs of retirement:
- You must be over 60 before you can start with withdraw money
- The money you take out after this age will be tax-free
If you are planning to use a Lifetime ISA for retirement, we would recommend you take independent financial advice to confirm this is the best option for you.
If you are employed you will, in all likelihood, have access to a workplace pension into which your employer will contribute. This probably means it will be a better option than a Lifetime ISA.
Having said that, in certain circumstances, a Lifetime ISA may actually make more sense; hence the need for financial advice to help you make the right decision.
Who can open a Lifetime ISA?
From 6th April 2017 anyone between the age of 18 and 40 can open a Lifetime ISA.
You can carry on contributing to the Lifetime ISA until you are 50.
Is there a limit on how much can be paid in each year?
You can contribute up to a maximum of £4,000 per year.
Is a bonus added by the Government?
At the end of the first year, in April 2018, the Government will add a bonus of 25% of the contributions you have made.
In a change from the original proposals, from 6th April 2018 this bonus will be added monthly.
How can the money be invested?
In common with other ISA options the money can be held in Cash or Stocks & Shares.
Is there a penalty for taking money out earlier?
If you take the money out before the age of 60 and do not use it to buy your first home, you will pay a penalty.
This will be loss of the 25% bonus plus any interest or growth on this and a 5% penalty.
We are here to help
If you would like to understand whether a Lifetime ISA is the right option for you, we are here to help.
Call Sarah or Bev today on 0115 933 8433 or email firstname.lastname@example.org