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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Osborne declared that this budget would “put the next generation first”, so has tried to take away the difficult choice that young people face between saving to buy their first home and saving for their retirement. He commented: “My pension reforms have always been about giving people more freedom and more choice. For those under 40, many of whom haven’t had such a good deal from the pension system, I am introducing a completely new flexible way for the next generation to save.”

However, Steve Webb, former pension minster worries that “young people would substitute the Lifetime ISA for their workplace pension”. He said: “Young savers who opt out of pensions in favour of a Lifetime ISA lose the contribution from their employer and the chance to build a tax-free lump sum from a pension pot — how will they know which is right for them?”

The new Lifetime ISA will come into effect from April 6, 2017 and will be eligible to anyone between the ages of 18 and 40 on that date.

Below are some of the main details proposed, although final details of the rules relating to Lifetime ISAs will be issued by the government later in 2016.

• The maximum contribution a person can make is £4,000 per year to benefit from the government bonus of £1,000.
• Savings made before a person’s 50th birthday will receive an additional 25% bonus from the government. So, if the maximum contribution of £4,000 is made in a tax year, the government will add in a further £1,000 at the end of the tax year.
• Any savings made into a Lifetime ISA are counted as part of the overall ISA limit (which is increasing from £15,240 to £20,000 from 6 April, 2017).

Savings for a first home:

• Any Lifetime ISA savings and the government bonus can be used towards a deposit on the purchase of a first home worth up to £450,000 in the UK. This can be done at any time after 12 months of opening an account.
• Two first time buyers can benefit from the government bonus from their own Lifetime ISA if they are buying together.

There will be rules to set out how ‘Help to Buy’ ISAs and Lifetime ISAs will interact in terms of the government bonus and transfers into a Lifetime ISA account.

Savings used for retirement:

• After a person reaches the age of 60, any withdrawals made from their Lifetime ISA will be tax-free. Any withdrawal made can be used for any purpose – it’s not restricted to just providing retirement benefits.
• If savings are withdrawn before age 60 (other than to help buy a first home), the government bonus will be lost, as will any interest or growth obtained on this. There will also be a 5% early withdrawal charge.
• Funds can be withdrawn in full before age 60 if someone is terminally ill. The government has also said they will consider whether Lifetime ISA funds plus the government bonus can be withdrawn in full for other specific life events in addition to buying a first home.

Contact Innes Reid today on 01244 347583, for professional and impartial advice on all aspects of financial planning. We are available at times to suit you.

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