Helen Tandy (Partner, Castlefield Advisory Partners)
From 6 April 2017, the Government will introduce a brand new option for savers between 18 and 40 years of age, branded as the Lifetime ISA. The age cap counts me out but I am lucky enough to have been able to get on the property ladder at age 18, with the help of my Nationwide staff rate mortgage. I do not expect my 19 year old son, who is currently at University, to be buying a property any time soon.
The main downside of pensions for many has been the lack of flexibility, and whilst some of the restrictions were lifted in the last Budget, the features of the Lifetime ISA may be designed to appeal to more people.
Eligible savers can save flexibly into the Lifetime ISA over the long term for a first home and for retirement in one account.
More of the detail:
Savings made into a Lifetime ISA are counted as part of the overall ISA limit (which is increasing from £15,240 to £20,000 from 6 April 2017). It will be possible to have both a standard and a Lifetime ISA, subject to the £20,000 limit.
Up to £4,000 per tax year will benefit from the government bonus of 25%, so long as these savings are made before a person’s 50th birthday.
So, if the full £4,000 is paid in over a tax year, the government will add in a further £1,000 at the end of the tax year (so £1 for every £4 saved).
The ISA manager will claim the bonus and add it to the Lifetime ISA account.
The bonus however comes with some restrictions, see below:
Where the savings are used for a first home:
Once the Lifetime ISA has been opened for 12 months, the ISA and government bonus can be used towards a deposit on a first home worth up to £450,000 in the UK. This startling figure just shows how inflated the UK housing market seems to be.
Two first time buyers can benefit from the Government bonus from their own Lifetime ISA if they are buying together.
Where the savings are used for retirement:
After age 60, any withdrawals made from their Lifetime ISA will be tax-free. Withdrawals made can be used for any purpose – i.e. not restricted to providing retirement income.
But if savings are withdrawn before age 60 (other than to help buy a first home), the Government bonus will be lost as will any interest or growth obtained on this. There will also be a 5% early withdrawal charge.
There are exceptions in the event of the saver’s terminal ill-health.
The Government is still to consult on some of the finer details before the launch next year, they are considering the possibility the Lifetime ISA could be used for other life events. From 2017/18 those with the Help to Buy ISA will be able to transfer to the Lifetime ISA.