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Money never worked so hard: The Lifetime ISA explained.

by | Jul 28, 2020

The Lifetime ISA (LISA) was launched in 2016 and is an indispensable tool to aid first time buyers in building a deposit for their first home.

Make your money work harder with a Lifetime ISA.

 

A Lifetime ISA (LISA) is a great way for younger investors to save for their first home or retirement. Unlike a normal ISA, For every £4 you put in, the government adds £1 – up to a maximum bonus of £1,000 per year. So a saver who puts £4,000 yearly into a Lifetime ISA from the age of 18 could end up with a massive £32,000 bonus, before any interest or growth (assuming LISA limits don’t change). You can use a Lifetime ISA towards a deposit for a first home or retirement. In either case, it’s tax-free and you can take advantage of a 25% government bonus.

The Lifetime ISA must be opened in the name of the first-time buyer, and the money saved has to be used to purchase a first home (the keyword being first – attempting to use the LISA to purchase a second home will result in a clawback of the Government bonus, an effect of which means you lose 6% of your own contributions). If the account holder doesn’t use the LISA to buy their first home, they can use it to supplement their retirement income instead.

A LISA (much like an ISA) can be invested in stocks and shares or held as cash, but not all providers offer both, so it is important to be certain of the terms of the LISA offered by each provider. A Lifetime ISA is not for everyone. If you withdraw money before age 60, other than to purchase your first home, you will pay a government withdrawal charge of 20% (25% from 6 April 2021). This may mean you get back less from your LISA than you paid in.

 

The Lifetime ISA at a glance:
  • Lifetime ISAs can be opened by savers aged 18 to 39
  • Contribute up to £4,000 p.a. into a LISA until you turn 50
  • Receive a 25% government bonus on what you pay in (up to £1,000 p.a.)
  • Withdraw money tax-free to buy a first home, or from age 60 for retirement

 

If you or your children are interested in opening a Lifetime ISA we’re happy to help guide you – just get in touch.

 

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