Lifetime ISA: Saving for your financial future just got a step easier!

Already known as LISA, the new Lifetime ISA (Individual Savings Account) is a new savings option that was announced in the 2016 budget.

But with so many different ISAs around at the moment, including cash ISAs Junior ISAs, Help to Buy ISAs, investment ISAs, innovative finance ISA etc., how do you know which is the best one for you and whether you should consider the new offering?

More details will be confirmed about the Lifetime ISA later this year in the Finance Act, but below are some answers, to recurring questions that might help you.

What is an ISA?

An ISA is an Individual Savings Account that allows you to save or invest money without paying tax.

How much can l save?

Currently, you can save up to a maximum of £15,240 each financial year.

What is different about the LISA?

The aim of the Lifetime ISA is to encourage and help first-time buyers purchase their first home and to encourage savings to fund your retirement once you reach 60.

When will it be launched?

It will be launched in April 2017.

How do l qualify?

You need to be a UK resident and aged 16 or over to open a cash ISA or aged 18 to open other types of ISAs. However you must be aged between 18 and 40 to be eligible for the new LISA. So, if you will reach 40 on or before 6 April 2017 you won’t be eligible. You must have been born on or after 7 April 1977.

Can I have other ISAs at the same time?

Yes. It will be possible to contribute to a LISA as well as other ISA accounts in any tax year. The overall ISA allowance limit will also increase from April 6, 2017 from £15,240 to £20,000.

Can l open a joint account?

Accounts are limited to one per person, so two first time buyers can both receive a government bonus when saving together.

What are the benefits?

Basically, the government bonus is the equivalent of a 25% interest rate on your savings and you will also receive interest and growth on top! It’s a ‘no brainer’!

Is it flexible?

Yes. You can save up to £4,000 a year, either as a lump sum, a regular monthly amount or as and when you can.

When will l receive the bonus?

At the end of each tax year you will receive a 25% bonus from the government on the amount you have saved that year – so a potential £1,000 each year before any additional growth!

How long is the bonus paid for?

The bonus is paid until you hit 50.  The bonus is only paid on the money you save. The maximum bonus you could receive currently is £32,000 so long as you are able to save £4,000 every year from aged 18-50.

How do l use the LISA to buy a house?

Once you have been saving for 12 months you can use the money to purchase a residential property, anywhere in the UK, costing up to £450,000 – as long as you are a first time buyer.

What happens after l have bought my home?

You can continue saving in your Lifetime ISA after buying your home for your retirement, and it will still be subject to the same rules and bonuses.

What is the difference between a Help to Buy: ISA and a LISA?

There are a number of differences between the two, but the main difference is how the bonus is structured with the LISA. Click here for an easy comparison.

It is planned that LISAs will eventually replace the relatively new Help to Buy (H2B) ISAs, and it will be possible to transfer existing H2B ISAs into a LISA in due course.

Is there a penalty for taking my money out early?

You can withdraw your money at any point, but under the preliminary plans, you will not get the government bonus on the portion removed and you will be subject to a 5% charge! Rules are different if you have a terminal illness.

However, the government is consulting on whether to allow “LISA loans”, where you could “borrow” funds from your LISA for up to a year without losing the bonus/paying the surcharge, as long as you repay the ‘borrowings’ in full.

Where can l get more information?

More details are available from HM Treasury here

LISAs are only a part of planning for the future and independent financial advice is essential to make sure that you are using all the options including flexible access pensions.

Contact Innes Reid today on 01244 347583, for a free consultation. We offer professional and impartial advice on all aspects of financial planning.

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