An introduction to the Lifetime ISA
The new Lifetime Individual Savings Account (or ISA) is designed to help young people save flexibly throughout their lives for the long-term.
Individuals over the age of 18 and below 40 are able to open a Lifetime ISA and pay in up to £4,000 each tax year. They will be able to continue making contributions up to the age of 50. The government will add a 25% bonus to these contributions.
Tax-free funds, including the government bonus, can be used to help buy a first home worth up to £450,000 at any time from 12 months after first saving into the account.
If not used for first home purchase, the funds, including the government bonus, can be withdrawn from the Lifetime ISA from age 60 tax-free for any purpose.
Savers will also be able to make withdrawals at any time for other purposes, but with a 25% government charge applied to the amount of withdrawal. This returns the government bonus element of the fund (including any interest or growth on that bonus) to the government plus an additional charge.
Whilst Lifetime ISAs are not going to be suitable for everyone, they may be particularly effective in selective circumstances, including:
– To help a child or grandchild aged 18 or over to fund a deposit for their first home. It may be that monies already saved for the young person could be paid into a Lifetime ISA in their name to benefit from the government bonus.
– For individuals currently below the age of 40 and who are already fully funding pension contributions, likely to exceed the pension lifetime allowance or not eligible to fund large pension contributions themselves (such as non working spouses) but wish to save for their long term future