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What is a Lifetime ISA and is it Worth Having?

3 October 2019
Darren Hughes
Reducing Tax

The Lifetime ISA (LISA) was launched in 2017 and is available to over 18s and under 40s. Each year you can put up to £4,000 into your LISA and the government will contribute a 25% bonus of your investment. So for example, if you contribute £4,000, the government will contribute £1,000. The total invested could be used to purchase your first house or accessed when you reach the age of 60. When you turn 50, you will not be able to pay any more money into your LISA and therefore you will not receive the 25% bonus.

You will need to decide whether you invest the funds in cash, stocks and shares or a mixture of both.

If you withdraw the money before you reach 60 then you will be charged a 25% penalty.

The small print:

  • Your investment will count towards your annual ISA allowance (Currently £20,000).
  • The withdrawal penalty charge aims to recover the government bonus received and apply an extra charge to the original savings. This means if you treat your Lifetime ISA as a short-term savings product, you could get back less than you paid in.
  • Your first home must cost less than £450,000 to qualify.
  • You must use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them and the property must be acquired with a mortgage.
  • If the person you’re buying a property with has a Lifetime ISA, they can use their savings and government bonus too. They will however pay the 25% withdrawal charge if they already own or have a legal interest in another property.
  • If you have a Help to Buy ISA as well as a LISA you can only use the government bonus from one of them to buy your first home.
  • If you are terminally ill, with less than 12 months to live, then you can withdraw the money without incurring a penalty.
  • If you die your Lifetime ISA ends on the date of your death. There’s no charge to withdraw the funds or assets from your account.
  • To open and continue to pay into a Lifetime ISA you must be a resident in the UK, unless you’re a crown servant (for example, in the diplomatic service), their spouse or civil partner.
  • Once the LISA is opened, you’re not locked in with one provider, it can be transferred to another provider.

So to summarise – there are restrictions to its use, but if you qualify and are keen to save for your first house or retirement, it is worthwhile considering a LISA for the generous government contributions.

For further advice on ISAs contact Darren in our tax department.

The content in this blog is correct as at 03/10/19. See terms and conditions.

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