Much has been made in the press of the Lifetime ISA announced by the Government. Whilst it won’t be available until April 2017, many see it as a sign of what might be to come in terms of pensions reform. The Treasury has been keen to stress that the Lifetime ISA is not a pension, but can run alongside one. Many wonder if it is the first step in withdrawing pensions, and particularly tax relief on pensions, as we know them. No one really knows, but let’s focus on what we do know about the lifetime ISA.
You can invest up to £4,000 a year and the Government will pay in £1 for every £4 saved. So the maximum Government top up is £1,000 per annum, which will be credited annually. You can open a Lifetime ISA alongside a normal or Help to Buy ISA, but total ISA contributions when the Lifetime ISA comes into force next year will be £20,000 a year. If you already have a Help to Buy ISA, there will be the option to transfer it into a Lifetime ISA when they become available.
You can open a lifetime ISA if you are over 18 but under 40 years of age, but if you already have one in place you can contribute until age 50.
Interest will be paid on any funds held within the ISA, free from tax. There will also be a Stocks and Shares option. In respect of the tax free growth it is similar to a normal ISA. Where it is different is the withdrawal restrictions. There are two key points where you will have access to the ISA:
– Purchasing your first home.
– For any reason, but only once you reach 60 years of age.
So from that perspective, it is a lot more restrictive than a normal ISA. You can access the funds earlier, but you will have to repay any Government bonuses and you will incur a 5% withdrawal charge.
It should also be noted that the Lifetime ISA can only be used to fund a property deposit if the house is worth less than £450,000, so it may not work for people in some areas of the country.
This article should not be construed as advice. Whether or not a Lifetime ISA is suitable for you will depend on your personal circumstances. Should you wish to speak to one of our Financial Planning Consultants about ISAs, pensions or alternative savings vehicles, please contact our office on 01772 840426.