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Lifetime ISA

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THE LIFETIME ISA

George Osbourne’s March budget unveiled the proposed Lifetime ISA (LISA) to be rolled out in April 2017.

“…25% bonus contribution from the UK Government…”

Much like the Help-to-Buy ISA currently on offer, the LISA will incentivise savers by offering a 25% bonus contribution from the UK Government on every £1 placed into the scheme - providing certain criteria are met.

The LISA however will allow greater flexibility and a more generous saving cap (to a maximum of £32,000) than its predecessor and as a result, is likely to see many existing Help-to-Buy savers switch into LISAs from April 2017.

“…saving of £4,000 per annum by any mix of lump sum payments and monthly contributions…”

In terms of flexibility, the proposed LISA will permit saving of £4,000 per annum by any mix of lump sum payments and monthly contributions – much like a standard NISA. Whereas the Help-to-Buy scheme currently on offer restricts participants to a maximum contribution of £200 per month and therefore an annual cap of £2,400 (£3,400 in year one).

Though both ISA products are targeting first time property buyers with no prior home ownership, the way in which the bonuses are paid also differs significantly - the LISA will provide a 25% bonus annually to savers as opposed to only on the purchase of a qualifying UK property. In addition, the funds within the LISA will be valid on UK wide property up to a value of £450,000 – a £200,000 increase in property purchase price for non-London residents over the Help-to-Buy ISA.

“…money can be withdraw tax free beyond the age of 60…”

As a further incentive, the LISA will continue to provide annual bonuses until the holder’s 50th birthday and this money can be withdrawn tax free beyond the age of 60 - there’s no 25% cap on tax free drawdown as there would be if the funds were held within a pension.

 Applications will be open for those between 18 and 40 years of age with all contributions made before the individual’s 50th birthday benefitting from the 25% government credit. It is worth noting however that the Help-to-Buy scheme does accept applicants at the age of 16 so may still be a useful tool in the short-term.

“…invest funds in stocks and shares...”

A further benefit of the proposed LISA is that as well as cash holdings the saver can choose to invest funds in stocks and shares - this could potentially enable greater tax free growth than holding cash alone.

Generally speaking, if you’re looking to purchase your first property you should consider opening a Help-to-Buy ISA with a view to assessing your circumstances again when the LISA is made available in April 2017.

Also, depending on your tax and financial position the LISA may also represent a flexible vehicle for retirement planning.

 

 

 

 

Lifetime ISA

Help-to-Buy ISA

Annual Saving Allowance

£4,000

£2,400 (£3,400 in year 1)

Contributions

Lump Sum or Monthly

Monthly Only

Maximum Government Bonus

£32,000

£3,000

Bonus Payment

Annually

On the Purchase of First Property

Investment Type

Cash or Stocks & Shares

Cash Only

Maximum Property Price

£450,000

£250,000 (£450,000 within London)

Bonus Availability

After 12 months

£1,600 minimum saving

Eligibility

Those aged between 18 & 39

First Time Buyers over 16

 

For additional information or advice on ISAs please contact SWLaw Investment & Financial Planning Ltd on 01752 205205 for a free initial appointment.

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