The Lifetime ISA combines all the lovely benefits of an ISA with some of the attractive features of a pension – a chunky 25% bonus from the government. Unlike the Help-To-Buy ISA it can be invested in stocks and shares as well as cash. So for every £1 you pay in, you get a free 25p from the Government. Up to £4,000 from you every year (so £1,000 from the Government every year max).
But, and it’s a big but, there are restrictions on the way this money can be used. Why is life full of small print!?
The money must be used for a first home, up to the value of £450,000 (NB the money will be paid directly to the conveyancer/solicitor, so there’s really no getting around this), or for retirement at age 60 and over. The sting in the tail is this – if you take the money before 60 OR for anything other than a house purchase, you will be clobbered with an exit penalty of 25%, which will eradicate all bonuses and leave you a bit out of pocket. So you have to be sure.
Who might it suit?
We think it’s good for those first-time buyers who know they will buy a property, and those who know that this house will cost less than £450,000. It generally beats the existing Help to Buy ISA (if you’re under 40) because the contributions from the Government can be more, outside of London you can still get the bonus for a property worth up to £450,000 AND you can use the money at exchange, not completion.
It’s also an interesting way to save for retirement if you are a) a basic rate taxpayer and b) Self-employed. Or if you’re a big earner, under 40 and you think you might max out your pensions lifetime allowance.
If you are a salaried employee you are probably better off sticking in your workplace pension because your boss has to pay into that too. Want to check? Ask your HR department how much they add for you now – and by 2019 when the law will force them to be more generous. If you do the maths, this top-up from your boss PLUS pensions tax relief from the Government will very likely be more than the 25% slug you get in the Lifetime ISA.
Finally, you have 2 choices of which ‘flavour’ you want – the cash variety or the stocks and shares variety. If you are saving for a house and will need the money within 5 years, you’re probably better off in cash. If your timeframes are longer, then consider stocks and shares. And if you’re under 40 and saving for retirement, our personal view is that you’d be bonkers to sit in cash for 20 years!
Where can you get one?
At time of writing you can get one from Hargreaves Lansdown, Nutmeg and The Share Centre.
These are all stocks and shares LISAs. No cash ones are available yet but the Skipton is planning one for June. You can always open a stocks and shares one and move it to cash later down the track.
You have to have had a LISA open for a year before you can use it. If you are 39, it is probably worth opening one up with the minimum (usually about £100) just to keep your options open for the future. Eg You may be able to afford a contribution of say £4,000 for retirement savings when you’re 49 – if you have one of these accounts that’s a ‘free’ £1,000 from the Government. If you don’t open it before you’re 40 – tough cheese.
You can move a shares one into a cash one later if you want.
These other groups have told us that they plan to launch one soon:
AJ Bell Youinvest
Charles Stanley Direct
Chelsea Financial Services
True Potential Investor
Finally if you have a Help-To-Buy ISA and you’re not planning on buying a house before April 2018, it will make sense to transfer to the LISA in the vast majority of cases. You will get the Government bonus on any funds you move over.
Here’s a fact sheet from the Government with more details.
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