Leanne Macardle

Leanne Macardle

Editor
Published: 29/01/2019

At a glance

  • A Lifetime ISA can be opened by anyone aged 18 to 39
  • You can save up to £4000 per tax year into a Lifetime ISA
  • There is a Government bonus of 25% available
  • Anything saved in a Lifetime ISA must be used to buy a first home or for your retirement

 

Six things you need to know about the Lifetime ISA

Since officially launching on 6 April 2017 the Lifetime ISA (or LISA for short) is designed to help people meet their savings goals. But just what is a Lifetime ISA, and how can you benefit? Read on for an overview of the key things you need to know about this savings vehicle.

  1. It can be opened by anyone aged 18 to 39. There's a clear cut-off point – if you're aged 40 or over you won't be able to open one, even if it's your 40th birthday.
  2. You can save up to £4,000 each year, with this forming part of your annual ISA allowance. Depending on availability, it works much like a traditional ISA, in that you can save in cash or stocks and shares.
  3. You'll receive a Government bonus of 25% on top of everything you save, which means your pot could be topped up by as much as £1,000 every year. The bonus will be paid until the age of 50, with the maximum amount you could receive potentially standing at £32,000 (if you saved the full £4,000 a year between the ages of 18 and 50). Once it's in, it's your money, which means you can earn interest on the bonus, too.
  4. The savings can only be used to put towards a first home or retirement. The LISA has been designed with two aims in mind – to help first-time buyers get on the ladder, and/or help people save for retirement. In the case of the former, you can withdraw the money at any time after 12 months of having the account, provided the funds will be used to buy a first home in the UK worth up to £450,000. In the case of the latter, you can only access the money on or after your 60th birthday. Either way, the money can be taken out tax-free.
  5. Withdrawing the money for any other reason will result in a 25% penalty charge. The only exception to this is if you are diagnosed with a terminal illness, or you take the money out within the first year, i.e. before the first bonus is paid. However, this 25% penalty means you could end up with less than you put in.

    For example, let's say you saved the full £4,000 in the first year and received the Government bonus, bringing your pot to £5,000 (excluding any interest earned). If you took the money out in year two, the 25% charge would mean you'd be left with £3,750 – less than your original investment. It's for this reason it should only be considered by those who are confident they won't need their money for any other reason.
  1. So far, it hasn't gained much traction– in part because of the aforementioned restrictions, together with concerns that it could mean people stop saving into a workplace pension – with only a few Lifetime cash ISAs available at the time of writing.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

The LISA may not be widely available just yet, but could still be worth considering – after all, tax-free money from the Government is nothing to be overlooked!

Pros and cons of the Lifetime ISA

  • A significant 25% bonus from the Government every month.
  • Since you can only get at the money if you are buying a house for the first time or on your 60th birthday, this is a great vehicle for long-term savings.
  • Not a huge choice of products as the market has been slow to buy into the idea.
  • Heavy exit charge if you do withdraw the money (other than for buying a house for the first time or at age 60).

What next?

You can find out more about the Lifetime ISA by reading our guide.

If the LISA isn't for you, you'll still want to make the most of your ISA allowance – check out the best cash ISA rates, or if you're comfortable with a bit of extra risk, find out more about stocks and shares ISAs instead.

Alternatively, a Help to Buy ISA may be more appropriate if you're saving for a first home and want the security of cash – check out the best deals.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

basket of eggs

At a glance

  • A Lifetime ISA can be opened by anyone aged 18 to 39
  • You can save up to £4000 per tax year into a Lifetime ISA
  • There is a Government bonus of 25% available
  • Anything saved in a Lifetime ISA must be used to buy a first home or for your retirement

 

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