What’s a Lifetime ISA?
Like its cousin the Help to Buy ISA (now closed to new investors), the Lifetime ISA (LISA) is designed to get you on the bottom rung of the property ladder and help you save towards your first home. But, unlike the Help to Buy ISA, you can keep saving after you’ve used it for your mortgage deposit until you hit 60 to bump up your retirement nest egg.
If you’re aged between 18 and 39 and are a first-time buyer, you can take a LISA out and save a max of £4,000 every year. You can contribute to it until you’re 50 and you’ll receive a 25% bonus from the Government every year. This is paid monthly, so put something in every month and the bonus will get paid.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.
Tax treatment varies according to individual circumstances and is subject to change.
Stocks and Shares ISAs invest in Corporate bonds; stocks and shares and other assets that fluctuate in value.
How it works
If you open a LISA (or several) at 18 and save the full £4,000 every year until you reach 50, your bonus will be £33,000. Pool resources with another first-time buyer and you’ll have a tidy £66,000 between you for your new home.
There’s nothing stopping you having an ISA alongside your LISA but remember to stay within the £20,000 allowable limit this tax year. You can take a new one out every year if you want too – you just need to have had a LISA open for at least 12 months to use it for a deposit.
Things to think about
- LISAs must be used on homes that cost £450,000 or less.
- You can combine your LISA with a Help to Buy ISA, but you’ll only get the bonus on one of them.
- Your home purchase must be completed within 90 days of withdrawing funds. You’ll need an extension from HMRC if it takes longer.
- If you decide to take the cash at 60, it’s all free of income and capital gains tax whether taken as a lump sum or in regular instalments.
Investors do not pay any personal tax on income or gains on ISAs. Tax treatment varies according to individual circumstances and is subject to change
For Lifetime ISA you will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.
By saving in a lifetime ISA instead of enrolling in, or contributing to an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme:
(i) you may lose the benefit of contributions from your employer (if any) to that scheme; and
(ii) your current and future entitlement to means tested benefits (if any) may be affected.
To talk to us about investing in a Lifetime ISA, please send us a message using the form on the right-hand side of this page. We’ll get back to you as soon as we can.
Need some help?
Talk to our experts today