Lifetime ISA’s let you save up to £4,000 a year towards your first home or retirement. It gives you a cash bonus up to £1,000 a year on top of this. The following guide walks you through how the accounts work and whether they are a good choice for you.
WHAT IS A LIFETIME ISA?
Not only does a Lifetime ISA allow you to save up to £4,000 every tax year towards a first home or your retirement, the state adds a 25% bonus on top of what you save. This means you get a £1,000 of free cash annually.
Plus, you will earn interest on whatever you save. As it is ISA that interest is tax-free.
WHAT YOU NEED TO KNOW!
25% BONUS EVERY TAX YEAR
Save up to £4,000 a year in a Lifetime ISA by putting in cash when you can or as a lump sum.
You then get 25% bonus on top of that. So, if you save £1,000 you will have £1,250 saved. If you save the full £4,000 then you will have £5,000. This is all before interest and growth.
The bonus stops being paid when you reach 50.
If you contribute monthly the bonus is pad monthly – this takes 4-9 weeks to arrive.
Once in your bank account the bonus counts as money – so you will get interest on it too.
You will only get the bonus on contributions – not on interest or stocks.
The maximum bonus is £33,000 if you open it at 18 and max it out until you hit 50 (unless you’re born on 6 April, when the max is £32,000).
LIFETIME ISA’S AGE RESTRICTION
Anyone aged 18-39 can open a Lifetime ISA.
If you are swiftly heading for 40 years old, then make sure you open one before you hit the cut-off age. Once you have hit 40, you can continue to put money into the Lifetime ISA until the day before your 50th birthday.
You can still transfer to a new provider to get better interest rates. You just can’t open another one for new money only.
OPEN AND CONTRIBUTE TO A CASH ISA AND A LIFETIME ISA AT THE SAMETIME
The overall ISA limit is £20,000 in the 2020/21 tax year. You are allowed to split this between a LISA (up to the maximum £4,000) and put the remainder in a cash ISA, stocks and shares ISA and/or an innovative finance ISA (for peer-to-peer investing) in the same tax year.
You’re also allowed to hold a Help to Buy ISA and a LISA at the same time, though you can’t get the first-time buyers’ bonus on both. But you could get the Help to Buy ISA bonus for a home and then use the LISA and its bonuses for retirement.
Fore more information in regards to a Lifetime ISA please visit – www.mortgagesquared.co.uk/lifetime-isa-explained/