The Lifetime ISA is (LISA) the government’s latest innovation in the savings account market and forms part of the government’s strategy to make it easier for young people to save for the future. Announced a year ago during Budget 2016, the Lifetime ISA aims to incentivise saving towards house purchases and retirement.
What is a lifetime ISA?
From April 2017, individuals up to the age of 40 will be able to deposit up to £4,000 each year into a LISA.
The key benefit of saving into a LISA comes from the generous government contributions. The government will provide a bonus worth 25% of your annual contribution. For example, you will receive an extra £500 should you deposit £2,000 during the 2017/18 tax year. The £4,000 maximum annual deposit will therefore see the government contribute £1,000 towards your savings.
Savings held in a LISA should only be accessed for the purchase of a first home or when you turn 60 and are thinking about your retirement. Though it will be possible to withdraw your savings before your 60th birthday or spend them on something other than a first home, you will pay a charge for doing so. The charge effectively removes the government bonus and includes an additional charge.
Buying a first home
There are conditions attached to using LISAs for buying a first home:
the house must be valued at £450,000 or lower
you must buy the house through a mortgage
you must not have previously owned a house
the property must be in the UK and it can’t be a buy-to-let
you must have the LISA open for at least a year before you can use your savings.
You will be able to access your savings without penalty on the day of your 60th birthday. Like any other ISA, withdrawals are tax-free and there are currently no rules surrounding how you withdraw. Just remember that the government will reclaim your bonus should you withdraw at an earlier date.