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3rd October 2016
Lifetime ISAs

LISA Img for web

Lifetime ISAs (LISAs) are due to be made available from 6 April 2017 (subject to any changes in the autumn budget!). Here we take a look at the key features of these and who might benefit:

• Who is eligible to open a LISA? – Anyone between the ages of 18 and 40.
• How much can be contributed? – Up to £4,000 per tax year, up to age 50.  Any contribution to a LISA will count as using part of your overall ISA allowance (which is increasing to £20,000 from 6 April 2017).
 What does the Government add? – At the end of each tax year, the Government adds a 25% bonus for any contributions made in that tax year.  Where an individual is purchasing a home having contributed in that same tax year, they will be able to receive the bonus early so this can be included for the purchase.
 What can the LISA be invested in? – There will be cash LISAs and investment LISAs but you can only contribute to one type of LISA in any one tax year.
• What are the restrictions on taking money out?
o Tax-free funds, including the Government bonus and any returns, can be used to buy a first home to live in (not as a buy to let) worth up to £450,000 at any time from 12 months after opening the account
o Alternatively, the funds, including the Government bonus and any returns, can be withdrawn from the Lifetime ISA from age 60 for any purpose.
o If monies are withdrawn before age 60 for any purpose other than buying a first home, the holder will lose the Government bonus (and any returns on that Government bonus) on the amount withdrawn.  A charge of 5% will also be applied.
• What about two people buying a home together? – If both are first time buyers, they can each use their LISAs (including the Government bonus) to put towards the house purchase.  If only one is a first time buyer, then only they can benefit from the Government bonus.
• How will LISAs fit with a Help to Buy ISA? – You can only use the Government bonus from one of the ISAs (either the Help to Buy ISA or the LISA) when buying a house.  However, during the 2017-18 tax year only, existing holders of a Help to Buy ISA will be able to transfer those monies into a LISA and receive the Government bonus on those savings.  Any savings made into a Help to Buy ISA prior to 6 April 2017 and then transferred to a LISA will not count as part of the annual limit.  The funds and Government bonus can then be used to buy a first home 12 months from the date of opening the LISA.   The LISA compares favourably in a number of ways to the Help to Buy ISA and so it is expected that most people will switch (unless looking to buy within 12 months of any transfer).