Using the Lifetime ISA
The new Lifetime ISA will be available from April 2017. The Lifetime ISA is designed to help those aged between 18 and 40 to save for a new home or for their retirement. The new scheme will see the government provide a bonus of 25% on yearly savings of up to £4,000 and these benefits continue until the saver’s 50th birthday. This could mean an extra £1,000 for every £4,000 saved annually from the age of 18 to 50. In total this could see savers who invest the maximum contributions of £128,000 receive a maximum government bonus of £32,000. The government bonus is paid annually at the end of the tax year.HMRC has recently published some further information on the workings of the scheme. This confirms that as well as fitting within the 18-40 age bracket, the applicant must also be a UK resident, a Crown Servant or the spouse or civil partner of a Crown Servant. The £4,000 annual limit is part of the overall ISA investment limit. This limit will increase to £20,000 from April 2017. Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination of both.The money held in a Lifetime ISA can be used to purchase a first home worth up to £450,000 anywhere in the UK or withdrawn tax-free after the saver’s 60th birthday. The money invested in a Lifetime ISA can be used for other purposes but will be subject to a 25% withdrawal charge. The only other exception is if a saver is terminally ill and given less than 12 months to live.Individuals with a Help to Buy ISA can transfer those savings into a Lifetime ISA or continue to save into both. However, only one bonus can be used towards buying a first home. As a special concession, savers can transfer their total savings on 5 April 2017 from a Help to Buy ISA to a Lifetime ISA without this transfer affecting the £4,000 annual limit. This transfer must be completed during the 2017-18 tax year.