Meet LISA, the Lifetime ISA offering help for first time buyers
Lifetime ISA launched which will help you save more money than with the First Time Buyer ISA
The Lifetime ISA has been launched today, which is a longer-term tax-free savings account that gives a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year.
The product is only available to people between the ages of 18 and 40 and is aimed at either saving a deposit for your first home, of as part of a pension. If you withdraw your Lifetime ISA savings and bonus. It can be used towards buying your first home without incurring a withdrawal charge (subject to certain conditions), otherwise if you withdraw the funds held in your Lifetime ISA before you’re 60, a withdrawal charge of 25% of the amount you withdraw is charged.
As with other ISAs, you don’t pay tax on any interest, income or capital gains from cash or investments held within a Lifetime ISA
Lifetime ISA’s can hold cash, stocks and shares qualifying investments, or a combination of both, unlike Help to Buy ISA’s, here it is only cash.
You can save up to £200 a month into a help to buy ISA, whereas you can put up to £4,000 a year in a LISA – and there are no restrictions on when or how you invest that total amount. You can continue to pay into it until you reach 50. The account can stay open after then, but you can’t make any more payments into it.
Each account gets a 25% government bonus, but the higher LISA allowance means you could earn up to £1,000 annually.
And the LISA bonus is paid earlier – annually after year one, then monthly – compared to at the time of purchase with the help to buy ISA. So you could earn returns on the bonus in your LISA and that will help you to build an even bigger pot.
Your savings will be kept on a tax-free basis for as long as you keep the money in your Lifetime ISA.
One point of caution
There is a big reason why this isn’t a good move for all help to buy ISA savers – if you are planning to buy before April 2018 you should stick with Your Help to Buy ISA or you will miss out on the government bonus. With the Lifetime ISA, the first bonus is not paid until you have had the account open for a full 12 months.
Lifetime ISA – further advantages
The Help To Buy Isa will only allow you to buy a home worth up to £250,000 in the UK, although there is a higher limit of £450,000 if buying in London. The Lisa will allow you to buy a property of up to £450,000 in value anywhere in the UK.
Comparison between Help-to-buy and Lifetime ISA’s
|Lifetime ISA||Help-to-Buy ISA|
|Who can open it?||Anyone aged 18 to 39||Any first time buyers aged 16+|
|Maximum Savings a year||£4,000||£3,400 in first year, then £2,400|
|Maximum lump sum||£1,400||Not allowed|
|Bonus paid||Annually||When buying a property|
|Invest as well as save?||Stocks and shares or cash||Cash only|
|When it can be used to purchase a home||After 12 months||After it reaching £1,600 (which can be achieved in three months)|
|Maximum property price||£450,000||£250,000 or £450,000 in London|
Further information is available on gov.uk here