As many of you already know, the Lifetime ISA (LISA) is a new type of ISA that allows individuals to save tax-free. It was introduced in 2017 and has been designed specifically to help those who wish to save for their first home or build savings for when they retire in addition to a traditional pension. Whilst LISAs have not been a huge hit with the public to date, they do provide a valuable opportunity to receive £1,000 of free bonus cash.
The maximum contribution that can be invested into a LISA is £4,000 per year and, in addition to this, the government will pay a bonus of 25%, capped at £1,000 per year, to every contribution you make.
Of course, there is no such thing as a free lunch and there are certain criteria you must meet in order to be eligible for a LISA. You must be between the ages of 18 and 39, and the Government Bonus is only paid every year until you turn 50. For withdrawals to be tax-free the funds must be used for a deposit on a first property worth up to £450,000 or taken from the age of 60 for retirement. If you withdraw the money for any other reason you will pay a penalty charge of 25%.
You can open as many LISAs as you like, provided that you pay into only one in each tax year. You also have the freedom to transfer between different LISAs if you see a better rate.
Important Note: One of the rules about using the LISA for a property purchase is that 12 months must have passed since the first payment into the LISA. This becomes more complicated if you transfer your LISA. In these circumstances, the ISA manager’s guidance confirms that the 12-month rule applies from the date that the original account was opened. Whilst this seems straightforward, the situation can be more problematic if the investor already holds a LISA with the receiving provider. In these circumstances, the date of the first payment for the receiving provider’s LISA will always be the date that the first payment was made into this LISA. This will be the case even if the transferred LISA has an earlier start date
As the younger generation is finding it so hard to get into the property market and are also not really in the habit of saving for their retirement, this may be a great way for yourself, or your children and their children, to start saving for their future.
We have existing clients who are looking to the future and have LISAs for their children and grandchildren, so if this sounds like something you think your family could benefit from then just get in touch.
Redwood is one of the Souths’ leading Pensions, Investments, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning and Probate, we can advise on any situation. Join us at one of our Free Public Information Seminars: Book online Book Me A Place!, Call us on 01489877 547 or Email firstname.lastname@example.org to book a FREE Initial Meeting with us to review your financial planning needs.