On 6th April 2017, a new ISA was launched by the Treasury, called the Lifetime Individual Savings Account (Lisa), or simply the Lifetime ISA.
So what is the Lifetime ISA? Put simply, it is an ISA designed to help people save money throughout adulthood. However, some lenders are refusing to offer this product to its customers, as they feel it is ‘too complicated’.
We have tried to summarise the main points of the Lisa in an easy to understand way:
- Savers have to be aged between 18 and 40 in order to open a Lisa.
- You can only contribute money to your Lisa up until you reach the age of 50.
- Savers can only pay in up to £4000 per tax year.
- At the end of the first year (2017/18), the Government will add a 25% bonus to your savings, for example, £1000 if you’ve saved the full £4000.
- From the 2018/19 tax year, this bonus will be paid monthly.
- The potential bonus you can earn is £32000, if you open your Lisa aged 18 and contribute the full £4000 every year until you reach age 50.
- You can only withdraw money from your Lisa, penalty free, if you are over the age of 60, you are buying your first home or you are terminally ill. All other withdrawals will incur a hefty 25% charge (with the exception of year 1).
In order to use your Lisa to contribute towards your first home, you must qualify as a first time buyer, meaning that you must not own or have ever owned a property in the UK or anywhere in the World. If you are buying a house with someone else who already owns property but you don’t, you can still use your Lisa to contribute towards its purchase.
Also, if you are using your Lisa to buy a property, it must:
- be in the UK;
- cost less than £450,000;
- be the only home you will own and be where you intend to live;
- be purchased with a mortgage.
After you turn 60, you can withdraw the money from your Lisa completely restriction and penalty free. If you choose to leave it invested, any interest or growth will continue to remain tax-free.
If you become terminally ill (i.e. you have less than 12 months to live) you can withdraw your savings penalty-free. In the event of your death, the money saved in your Lisa will become part of your estate for the purposes of inheritance tax.
Before you decide to open a Lisa, be sure to shop around and talk to an independent investment adviser about your circumstances and intentions.