THE OPPORTUNITY OF A LIFETIME FOR YOUNGER SAVERS
UNDER THE NEW ‘LISA’ scheme, Britons aged between 18 and 39 can save up to £4,000 a year and receive a 25 per cent government bonus. This gives them a maximum £1,000 a year, free money from the government.
That takes the total contribution to £5,000, with any interest and growth on top of that. Better still, once you have opened an account, you can keep claiming that bonus on money you pay in until age 50.
If you have saved money in a Help to Buy Isa before April 6 you can transfer that into a Lifetime Isa. Savers cannot exceed next year’s maximum £20,000 overall Isa limit. A saver who opens a Lifetime Isa on their 18th birthday and contributes the maximum £4,000 every year until they hit 50, would get a total bonus of £32,000 under current rules.
If you are 40 or over on April 6, sorry, but you won’t be eligible. Only those born on or after April 7, 1977, qualify.
If you are too old to benefit yourself, encourage younger members of the family to take advantage.
Unlike normal Isa investments, the money can only be used for two things, property deposit or retirement income.
The primary aim is to help young people save a deposit on their first home, which cannot be an investment property, or cost more than £250,000 outside of London, or £450,000 in the capital.
If you have ever owned a property before, even a part share of an inherited property inside or outside the UK, you will not qualify.
Despite these limitations, Chris Hill, chief executive officer at Hargreaves Lansdown, says it is a must-have for those saving for their first home. “It builds on the success of the Help to Buy Isa in encouraging people to save to get on to the property ladder.”
Alternatively, it can be used to save for retirement, which means you cannot touch the funds until age 60 or beyond.
Withdrawals are free of tax but be warned, there is a 25 per cent early withdrawal penalty if you take the money before age 60 for any other reason than buying a property. The Financial Conduct Authority recently issued a statement saying that providers must warn customers about this penalty, and the potential impact on any meanstested benefits they may claim later. Tom Selby, senior analyst at investment platform AJ Bell, says that investors must also be warned of other potential risks. “For example, they could miss out on valuable employer pension contributions if they choose to invest in a Lifetime Isa instead.”
Only a handful of providers, Hargreaves Lansdown, Nutmeg and The Share Centre, are set to offer Lifetime Isas at launch but more should follow in time, including the big banks.
As ever, be sure to shop around for the best deal, and should you need more details of the benefits of a Lifetime Isa you can find further information online at www.lifetimeisa.campaign.gov.uk