In the 2016 budget, released last month, the government announced that it would be offering 18-40’s the opportunity to open up a new ‘lifetime ISA’, to help towards the cost of a first home and boost savings for retirement.
The ‘LISA’, which will take effect from April next year, will offer recipients a 25% bonus on savings of up to £4000 per year. That’s a potential tax free saving of £160k and with many young people struggling to save for deposits and those worried about investing in their retirement, the lifetime ISA may come as a welcome reprieve. But what exactly does the new initiative offer and will it offer a viable method of saving?
Well, for every £4 a person puts into their lifetime ISA, the government will provide an additional £1 (capped at £4000 annually), boosting savings from £4000 to £5000 a year. The scheme, accessible to 18-40 year olds, will contribute to savings until the age of 50, meaning those that open up a lifetime ISA at 18, will have the potential to gain an extra £32,000, for free.
For prospective homeowners, the money they invest into a Lifetime ISA will become available after 12 months and buyers can choose to allocate however much they need to put towards the cost of a property (up-to the value of £450,000). Any remaining funds will still retain the benefits of the account. As an additional bonus for those looking to save for their first property, accounts will not be limited to a single household, but will be awarded on an individual basis, adding further incentive for couples.
For those saving for retirement, funds from their lifetime ISA become available at the age of 60 and fortunately, incur no fees or withdrawal tax provided they are not prematurely released. Investors must note however that withdrawing funds early, will mean losing out on the 25% bonus and any interest accrued as well as incurring a 5% charge.
The lifetime ISA will be a particularly attractive proposition for self-employed participants, allowing workers to enjoy the top-ups usually reserved for those operating under a work-based-pension scheme, but what about those that have the option? Well, the two can be used in conjunction and for those that have the means, it offers up a great additional avenue for tax-free saving, but for many younger working classes, it simply may not be feasible. There are those that are worried LISA’s may sway those looking to save for the short term, out of work-based-pensions. Experts have argued this would see individuals losing out on benefits such as employee contributions and the opportunity of building up a tax-free lump sum, as well as the ability to access funds at 55. However, the opportunity of a 25% top-up from the government, for many, will be too good of an opportunity to miss out on.
It’s imperative that those looking for the best way to invest in their future know what support is available. This is where Taylor-Hall has you covered. Click the link here to put forward any queries you may have about the new lifetime ISA, or contact us on (0191) 581 9018 for a free financial consultation.