One of the most surprising announcements to come out of George Osborne’s budget in March was the launch of a new Lifetime ISA, or “LISA”. In much the same way as the Help to Buy ISA, holders of this new account will receive a 25% bonus on deposits of up to £4,000 per annum, giving a bonus of up to £1,000 a year. The big difference with a Lifetime ISA however, is that it can be used to save for retirement, as well as a first home. How does the Lifetime ISA work?
From April 2017, anyone between the ages of 18 and 40 will be able to open a Lifetime ISA. Any savings put into the account before the account holder’s 50th birthday will also receive an added 25% bonus. There is no maximum monthly contribution, you can save as little or as much as you like, up to £4,000 per year. The total amount you can save each year into all ISAs will also be increased to £20,000 as of April next year. What can it be used for?
The savings and the bonus can be used to either pay towards a deposit for a first home worth up to £450,000, or to help fund retirement. As with the Help to Buy ISA, the accounts are limited to one per person, as opposed to one per home, which means a couple can save twice as quickly if buying together. This has made it a popular move for young couples hoping to plan for not just their first home, but their future as well. What if I already have a Help to Buy ISA?
If you already have a Help to Buy ISA, the funds can be transferred over to the Lifetime ISA in 2017, or you can continue to save in both. But only one account will receive the bonus for a first home. So if you have both and intend to use the bonus on the Help to Buy ISA to go towards your deposit for a home, the Lifetime ISA must be used for retirement in order to receive the bonus on that account. When do I receive my LISA bonus?
If using the account for retirement, all the savings can be withdrawn tax free, including the 25% bonus, once you have reached your 60th birthday. It is possible to withdraw the funds before this time, but the governmental bonus will be lost, including any interest or growth gained. There will also be a 5% charge added if the funds are withdrawn before your 60th birthday.
If any or all of the savings are being used for a first-time buyer to go towards a residential property, the funds can be withdrawn at any time, as long as the account has been held for over 12 months, and will retain the full bonus. In this case, you will need to claim your bonus through your solicitor or conveyancer, which may be subject to additional fees.
If you would like to discuss the new Lifetime ISA, or any other schemes that could help towards savings for your first home, contact our adviser today on 01202 937444 or visit our other offices to speak to a mortgage broker in Reading or a mortgage broker in Bournemouth