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incentive, the LISA will continue to provide annual bonuses until the holder’s 50th birthday and this money can be withdrawn tax free beyond the age of 60 - there’s no 25% cap on tax free drawdown as there would be if the funds were held within a pension.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.
Annual Saving Allowance
£2,400 (£3,400 in year 1)
Lump Sum or Monthly
Maximum Government Bonus
On the Purchase of First Property
Cash or Stocks & Shares
Maximum Property Price
£250,000 (£450,000 within London)
After 12 months
£1,600 minimum saving
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.