LIFETIME ISAs are a type of Individual Saving Account (ISA), with this kind account offering the addition of a 25 percent government bonus to savings – up to a maximum of £1,000 per year. Is it possible to boost savings by £2,000 in 2020?
The Lifetime ISA can be used by eligible people to buy their first home, or for saving for later life. In order to open one, a person must be the age if 18 or older, and under the age of 40.
Savers can put in up to £4,000 into this type of account, until they reach the age of 50.
That said, this £4,000 limit counts towards the annual ISA limit, which in the 2019 to 2020 tax year is £20,000.
It’s possible to hold cash or stocks and shares in a Lifetime ISA, or to have a combination of both.
With this type of account, the government adds a 25 percent bonus to savings, up to a maximum of £1,000 per tax year.
This means that while £4,000 can only be paid in per tax year, some may be able to save £8,000 in a Lifetime ISA in 2020.
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).”
He added: “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.”
It’s possible to withdraw money from a Lifetime ISA, however depending on the reason, it may be that the withdrawer pays a charge.
The fee isn’t payable if the reason for withdrawing is if the saver is buying their first home, aged 60 or over, or terminally ill with less than 12 months to live.
Otherwise, a 25 percent charge with withdrawing cash or assets must be paid.
This is to try to recover the government bonus which has been received, and to apply an extra charge to original savings.
If the savings are being used to help to buy one’s first home, then the following conditions must apply:
- The property must cost £450,000 or less
- The property must be bought at least 12 months after the Lifetime ISA is opened
- The buyer must 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.
If a buyer is purchasing with someone else who has a Lifetime ISA, they can use their savings and government bonus too.
That said, they will pay a 25 percent withdrawal charge to use their Lifetime ISA savings if they own or have a legal interest in property.
While it’s possible to have a Help to Buy ISA and a Lifetime ISA, it’s not possible to get the 25 percent government bonus on both.
The deadline to open a Help to Buy ISA has now passed. Savers who have a Help to Buy ISA can continue to save into it until November 2029.