So, what is a Lifetime ISA? ISA stands for Individual Saving Account. There are several different types of ISA’s, but a Lifetime ISA also known as a LISA has two main aims. Helping people save for their first home or retirement.
How does a LISA work?
If you open a Lifetime ISA, the Government will give you a bonus of 25% of what you have paid in, up to a set limit, every tax year. The key points are-
- You are limited to £4000 of new savings each tax year. The tax year starts on the 6th of April and finishes on the 5th of April.
- The monthly bonus from the government is 25%.
- £1,000 is the maximum bonus you can earn in each tax year.
- The amount you pay in is linked to your overall annual ISA allowance which is currently £20,000 for 2020/2021. So, if you paid £4,000 into your Lifetime ISA you could still pay £16,000 into other ISA accounts.
- You can open more than one type of ISA such as a cash Isa or a stocks and shares ISA in each tax year.
- You can pay into your Lifetime ISA until you are 60
Can I open a Lifetime ISA?
To open a Lifetime ISA, you need to meet the following criteria-
- Aged between 18 and 40
- A United Kingdom resident or a Crown servant such as a member of the armed forces serving abroad.
Using your Lifetime ISA to buy your first home.
There are a few restrictions on how you can use your Lifetime ISA to buy a home-
- Only first-time buyers can use a Lifetime ISA to buy a home.
- The house must be below the value of £450,000
- The house must be your main place of residence. It can not be rented out or used as a holiday home.
- You must use a repayment mortgage to fund the balance of the purchase price of the house.
If you are buying a property with your partner you can both open separate Lifetime ISA account to combine the benefits.
Using a Lifetime ISA in retirement
After the age of 60, you can make withdrawals from your account without incurring a fee. There is no restriction on how you spend your money and remember it is tax-free. You can make a full or partial withdrawal.
A Lifetime ISA should be a flexible way to supplement any other pension contributions you are making. If you are employed and your employer matches pension contributions it is worth considering paying into a Workplace Pension Scheme.
The small print
- You can access your cash, plus the government bonuses tax-free when-
- When buying your first house and your account has been open 12 months
- At and after the age of 60
- Diagnosed with a terminal illness
- If you die, the money, including interest and bonuses in your Lifetime ISA will form part of your estate for inheritance tax calculations.
You will pay a penalty to withdraw cash from your account. The charge is 25% of the amount withdrawn and is taken if the funds are not used for the purchase of your first home or after the age of 60.
How Anstee & Co can help you plan for your future.
Whether you are saving for your first home or looking to put a bit more money aside for your retirement then we can help. We are a firm of Independent Financial Advisers (IFA’s). This means that the financial advice we provide is unbiased. Our experience covers all aspects of personal financial planning, including pensions, estate planning, mortgages, protection insurance and investments.
We would welcome the opportunity to have a coffee with you and discuss how we might be able to provide you with the advice and help you require. Why not contact us today?
We have office located at-
- Kettering, Northamptonshire
- Stamford, Lincolnshire
- Towcester, Northamptonshire
- London, Central London
Due to the present government guidelines regarding COVID-19 (coronavirus) and social distancing we are making full use of video conferencing facilities such as-
- Zoom
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We can also arrange a conference telephone call. There is no need to visit an office as all work can be handled remotely. Meetings can be arranged at a time and in a way that is convenient for you.
If you have any thoughts or comments on this article, “What is a Lifetime ISA and do I need one?”, then we would love to hear from you.
Finally, the information contained in this article is for information purposes only and does not constitute financial advice. No action should be taken based on this information alone. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).