What is a Lifetime ISA?
Lifetime ISAs are Individual Savings Accounts which the Government are launching to help young people invest/save flexibly for the long term. The aim is that you will not have to choose between saving for your first home and retirement. You can use some or all of the money to buy your first home, or keep it until you’re 60 - it’s up to you. Similar to normal ISAs, you won't have to pay any Capital Gains Tax or further Income Tax on profits you make. Just be aware that if you're not a first time buyer, or prepared to wait until you're 60 to access your savings, a Lifetime ISA will not be beneficial to you.
Lifetime ISA age limit
Lifetime ISAs will be available to 18-39 year-olds. If you're older than that, why not open one of our Stocks & Shares ISAs, which also provide a tax-efficient way to invest? Similarly, have a look at our Junior ISAs if you are looking to invest for a child or grandchild who is under 18.
Get a 25% government bonus
For every pound you pay into a Lifetime ISA, you'll receive a 25% bonus from the Government. That's up to £1,000 of free money every year until your 50th Birthday if you continue to pay in! The Government will pay this bonus directly into your Lifetime ISA. Over your lifetime, you'll be able to make contributions of up to £128,000 and receive a maximum bonus of £32,000 from the Government, with investment growth on both.
Lifetime ISA limit
The Lifetime ISA limit (how much you can pay in) is £4,000 for the 2017/18 tax year. Any money you pay into a Lifetime ISA will contribute towards your annual ISA allowance, which will be increasing from £15,240 to £20,000 in April 2017. You will be able pay money into a Lifetime ISA in addition to a Stocks & Shares ISA, a Cash ISA and an Innovative Finance ISA each year.
Save for your first home and/or retirement
Any time from 12 months after opening and paying some money into a Lifetime ISA, you will be able to use your savings and bonus towards a deposit on your first home, worth up to £450,000 in the UK. Accounts are limited to one per person (rather than one per home), so two first-time buyers can both receive a bonus when buying together. If you have a Help to buy ISA, you can transfer those savings into a Lifetime ISA in 2017, or continue saving in both, but you will only be able to use the bonus from one of the accounts to buy a house.
You can also use the money for your retirement: after your 60th birthday, you can take out all your savings tax-free. You can withdraw the money (for any other reason) at any time before you turn 60, but you may have to pay a 25% withdrawal charge on the amount you take out.
Lifetime ISAs may not be suitable for everyone
You must be 18-39 years old to open a Lifetime ISA and you can pay in up to £4,000 each tax year, as part of your overall £20,000 ISA allowance. You will incur a 25% government charge on any money you withdraw before you are 60, unless you are using it to buy your first home or are terminally ill, therefore you may get back less than you paid in. You may also incur this charge if you transfer your Lifetime ISA to another type of account. Tax allowances and the tax benefits of Lifetime ISAs could change. If you save in a Lifetime ISA rather than a pension scheme, you may lose the benefit of your employer’s contributions. Saving in a Lifetime ISA may affect your current and future entitlement to means tested benefits. Please seek independent financial advice if you are unsure whether a Lifetime ISA is suitable for you.