If you’re aged between 18-40 you could kickstart saving towards your first home – and receive a 25% bonus on your deposit!
The Lifetime ISA savings scheme was launched by the government in April 2017 as a way to encourage more people to save money towards a property or a bigger pot for their retirement.
What is a Lifetime ISA?
A Lifetime ISA (also known as a LISA) allows you to pay in up to a maximum of £4,000 each year up until you reach the age of 50.
The government will add a bonus of 25% to your savings up to a maximum of £1,000 per year.
- If you were to save £2,000 in a year, you would earn a 25% bonus of £500 bringing your total to £2,500.
- If you saved the maximum amount of £4,000 in a year, you would earn a 25% bonus of £1,000 bringing your total to £5,000.
You can open the account if you want to save for a property deposit or if you want to save more for your retirement.
Your LISA account can hold cash or stocks and shares or it can be made up of both of these.
It’s important to remember that the account limit of £4,000 a year contributes towards your overall annual ISA limit. This limit is currently £20,000 for the tax year 2019/2020.
So, what happens when I turn 50?
Though you won’t be able to continue paying into the account when you turn 50, or receive the 25% bonus, your account will remain active and you’ll continue to earn interest or on your investment.
When can I withdraw the money?
There are conditions attached to the LISA account and you can only withdraw the money in the following circumstances –
- You’re buying your first property
- You’re aged 60 or over
- You’ve been diagnosed as terminally ill and have less than a year to live
If you choose to withdraw the funds for any other reason, you will be subject to a 25% charge.
Withdrawing for a property
If you intend to withdraw the funds in your LISA to buy a property, you can do so as long as all the following apply –
- The property costs no more than £450,000
- You are buying the property at least 12 months after opening your LISA
- You instruct a conveyancer or solicitor to act on your behalf in the purchase – this is because the ISA provider will pay the funds directly to them
- You are buying with a mortgage
I already have a Help To Buy ISA – can I use the bonus with that account too?
Unfortunately not. You can only use the bonus from one account to buy you first home.
However, you can transfer funds from an existing Help To Buy ISA into your new LISA account.
Buying with someone else?
A great part of the LIfetime ISA is if you’re buying a property with someone else who also has a LISA account, their savings and bonus can be used towards your move too!
It goes without saying that you should never take any financial decision lightly and you should always seek independent advice before making a decision.
Has the LISA helped you on to the property ladder? Share your story in the comments and don’t forget to share this guide!