Meet LISA – the new account for spring chickens
By Mike Narouei, Content Producer at Boring Money
7 April, 2017
And so a new tax year and Spring is upon us with a new £20,000 annual ISA allowance, a new £4,128 Junior ISA allowance (which bureaucrat came up with that awkward number!?) and the new Lifetime ISA for spring chickens who are enviably under 40.
As if being under 40 were not a bonus enough in itself, for every £1 you save in a LISA, the Government will give you 25p. FOR FREE!!!
But as always there are some terms and conditions. You need to use the money either to buy a first house (and there’s no wriggle room on this) OR lock it away until you are 60. If you change your mind about buying a house or Great-Aunty Ethel leaves you her flat, then the exit penalties will see you out of pocket unless you leave the money in the LISA until you’re 60.
Lifetime ISAs are a great idea for anyone who has not owned a home before and is dead set on buying one. The Government bonus of 25% will add up to £1,000 a year if you pay in £4,000. Are they a good pension substitute? Not if you’re an employee (‘cos you get your boss’ contributions on top) and especially not if you’re a higher rate taxpayer (you get great tax relief on pensions which effectively get you £1 for 60p. Even basic rate taxpayers only pay 80p to get £1 in a pension ‘cos of tax relief.)
We’ve got a straightforward f (http://www.boringmoney.co.uk/wp-content/uploads/2017/04/LISA-factsheet-APRIL2017.pdf)actsheet here (https://www.boringmoney.co.uk/learn-section/other-isas/) which compares Help to Buy ISAs against Lifetime ISAs and gives you some simple rules of thumb.
**Parent alert** – if your kids are saving for a house could you encourage them to set one up and pay in at Christmas and birthdays and whenever else it is you get stung!? ** Trust Fund Kids alert ** – the LISA contribution of £4,000 does count towards the annual ISA allowance of £20,000 – and you can’t use a LISA to build your property empire – no buy-to-let allowed.
Today there are only 3 places you can get one – Hargreaves Lansdown (http://www.hl.co.uk/investment-services/lifetime-isa), Nutmeg (https://www.nutmeg.com/lifetime-isa) and The Share Centre (https://www.share.com/accounts/isa/ready-made-lifetime-isa/account-overview/). HMRC fannied about and didn’t finalise the rules until very close to launch date – so we should see providers come to market before long. Nutmeg and Hargreaves Lansdown are the cheapest options today from 0.64%-0.67% respectively (Nutmeg ‘fixed allocation’ portfolios; Hargreaves Lansdown 0.45% admin fee plus a cheap, ready-made ‘Vanguard LifeStrategy’ investment fund from 0.22% which is a decent starter option.)
That’s all this week. Have a lovely Easter everyone. A final money tip – Sainsbury’s Online has 50p off Lindt choc bunnies – a 200-gram thumper is yours for £3. Happy days.