The Lifetime ISA (LISA) launched this month offering a whole new way to save. It’s an exciting opportunity for first-time buyers as it will be offering a 25% bonus on top of what you save.
Most people will be familiar with normal ISAs. Under a normal ISA you can save up to £15,000 per annum and not be taxed on the interest or gains on your investment. The LISA is a different way to save. It is specifically geared towards those looking to save for a first home or save longer term for retirement at age 60. In both circumstances there is no tax due when you take the money out.
The good news is that you can potentially use your LISA to buy your own home and then use the LISA again to save for retirement.
When you deposit money into the Lifetime ISA, you will get a 25% bonus on top of the amount you put in the account. So if you manage to save the full £4,000, you will end up with £5,000. If you save £1,000 you will have £1,250.
Here are a few more details about the saving process:
- You can open an account if you are between the ages of 18 and 39
- A bonus is paid until you turn 50
- The bonus is paid on contributions
- For the 2017/18 tax year the bonus is paid annually, and then monthly from April 2018.
- You could earn a bonus of up to £32,000. This could be achieved if you started the scheme on your 18th birthday and kept contributing the maximum £4,000 per year until you were 50.
The Lifetime ISA has been designed for two specific purposes:
- First-time buyers
- For use after retirement (past age 60)
For both of these purposes, you will not pay tax once you withdraw the money. The ISA is supposed to provide people with the motivation to save, and people are much more attracted to saving for a home than they are for retirement. So the basic plan is to encourage people to save for a home, and then once they have done that they should have built a saving habit. It is then hoped that the habit will continue and they will save for a retirement fund.
Much like the Help to Buy ISA, the Lifetime ISA is an individual product, and so couples can have one each and combine the money for use towards a home. This way you can double the bonus. However, the concept of doubling the bonus is only applicable to first-time buyers. If you have already owned a home previously, then you can only use the Lifetime ISA towards retirement savings.
You Can Have a Lifetime ISA and a Help to Buy ISA
This is great news, and certainly good encouragement for people to have both accounts. They can even be used together for the purchase of a home. It should be noted, however, that you can only use the bonus from one of the ISAs towards the home.
The Lifetime ISA is exciting, and it is something that many people are looking forward to this year. It has a huge number of benefits for those between 18 and 39, and while some people will inevitably be left out, it’s something the rest of us should be looking forward to.