Financial Planning: Lifetime ISA

Those aged between 18-40 are under increasing pressure to save for their first home and plan for their retirement. The government has increasingly publicised this matter over recent years in order to bridge the gap.

The Lifetime ISA is a government based incentive scheme, designed to encourage young people saving for their first home whilst alternatively saving for their retirement.

It is as flexible as you need it to be. As there will be no monthly contribution limit, savers will have the option of monthly contributions or lump sum deposits.

Savers who make the maximum contribution of £4,000 a year will receive a £1,000 bonus per tax year. Food for thought, if you held the Lifetime ISA for the whole term until you were aged 60, making maximum contributions, you could receive a whopping £32,000 in government bonuses’.  Not only will you receive bonuses, you will accumulate growth and interest all tax-free.

After the first 12 months after opening the account, savers can use their Lifetime ISA contributions to purchase their first home up to £450,000. The remaining funds, including the government bonus, can be withdrawn from age 60 for any other purposes, such as retirement.

The Basics of the Lifetime ISA

  • The Lifetime ISA will be available to those under 40 from 6th April 2017
  • There will be a government incentive of 25% bonus on contributions, which is paid at the end of each tax year until you reach age 50.
  • The maximum yearly contribution is £4,000.
  • The Lifetime ISA is available for those between aged 18-40.
  • The purpose is to help young people to save flexibly for the long term.
  • Tax-free growth on bonuses.
  • The Lifetime ISA is available per person not per household.
  • Savers will be able to save into both the Help-to-Buy ISA and the Lifetime ISA, however, the government bonus will only be applicable to one ISA.

Like all good things in life, there are particular limitations. If you turn 40 before 6th April 2017 you will not be eligible to open a Lifetime ISA, to qualify the earliest you could be born is 7th April 1977.

Restrictions of the Lifetime ISA:

  • Accounts must be opened between April 2017 and April 2019, otherwise, you’ve missed the opportunity.
  • The Lifetime ISA must be used for either purchasing your first home or planning for retirement– if you have ever held shares in a property, inherited or owned a home abroad you are not eligible.
  • The Lifetime ISA must be open for a minimum of 12 months before monies can be used to purchase a property.
  • The Lifetime ISA can be used for properties up to a value of £450,000. Anything above that, the saver will lose their bonuses
  • If the Lifetime ISA is used for retirement funding, the saver must hold their account until the age of 60 to obtain their bonuses.
  • If monies are withdrawn for any other reason, other than those stated in the other circumstances section, before age 60, bonuses, growth and interest will be revoked and a 5% charge will be applied.

As mentioned earlier the maximum £4,000 contribution counts towards your yearly allowance, which will be £20,000 April 2017, so you still have £16,000 to use with other ISA’s.

Both cash and stocks and shares Lifetime ISA’s are available, however, we advise you research your options, if you plan to use your funds within the next 5 years, it would be better to seek a cash ISA. However, if your timeframe is longer and you are willing to take a risk on your savings, considering a stocks and shares ISA may be better suited to your savings style.

We will be compiling a series of blogs comparing the Help to Buy ISA and Lifetime ISA, followed by the Lifetime ISA against pension contributions.

If you would like to discuss further the types of ISA’s that are available to you, give Aimee Law a call on 0121 764 7570 or email