Lifetime ISA warning: Savers may want to be aware of this key date in 2020

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LIFETIME ISAS may be used to save money by those looking to get onto the property ladder, or for spending later in life. Whether it’s for buying a home or for retirement, there is an important date in 2020 which savers may want to mark on their calendars.

A Lifetime ISA is a type of Individual Savings Account (ISA) which sees savers able to get a 25 percent government bonus. There is a limit as to how much a person can save in the account each year, and the maximum government bonus per year is £1,000.

It’s possible for an eligible saver to put in up to £4,000 into their account each year, until they reach the age of 50.

The government will add a 25 percent bonus to these savings – up to the maximum amount.

This £4,000 limit counts towards a person’s annual ISA limit, which covers all ISAs they may have.

In the 2019 to 2020 tax year, this is a total of £20,000.

With the New Year on the horizon, some savers may be looking to get – or keep – their finances on track in 2020.

People who have opted for a Lifetime ISA, or an ISA in general, may want to make a note of an important time of year for these types of accounts.

This is the end of the 2019 to 2020 tax year, which falls on April 5, 2020.

The new tax year will start on April 6, 2020, and it’s at this time of year when the ISA allowance will reset.

From this point, a person will be able to save up to £4,000 in a Lifetime Isa in the 2020 to 2021 tax year,

Steve Code, Insurance Director at Unity Mutual, explained: “To maximise the tax-free savings within a Lifetime ISA, an investor can invest £4,000 between now and 5th April 2020 to ensure they receive the maximum bonus of up to £1,000 from the Government.

“After 6th April 2020, when the new tax year starts, investors can again invest another £4,000 (assuming the rate stays the same for Lifetime ISAs) and receive up to another £1,000 bonus payment into their Lifetime ISA.

“This means that theoretically two payments of up to £4,000 can be made in 2020 (one in the 2019/20 tax year and another in the 2020/21 tax year).

“Lifetime ISAs are a valuable tool for the government to help tackle the problem of young people struggling to get onto the property ladder. They reward committed saving but also have a degree of flexibility too.”

Withdrawing money from a Lifetime ISA

It’s possible to withdraw money from this type of ISA if the saver is buying their first home, aged 60 or older, or terminally ill with less than 12 months to live.

Otherwise, one needs to pay a 25 percent charge if they withdraw cash or assets for any other reason.

Using a Lifetime ISA to buy a first home

It’s possible to use savings in a Lifetime ISA to help buy a person’s first home, if the following conditions apply:

  • The property costs £450,000 or less
  • The purchaser buys the property at least 12 months after opening the Lifetime ISA
  • They use a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them
  • The buyer is purchasing with a mortgage.

To maximise the tax-free savings within a Lifetime ISA, an investor can invest £4,000 between now and 5th April 2020 to ensure they receive the maximum bonus of up to £1,000 from the Government.

Using a Lifetime ISA to buy a first home

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