New Lifetime ISA: how it works

In his March 2016 and final budget, George Osborne announced the introduction of a new 'Lifetime ISA' from 6 April 2017, to encourage younger people to save for their first property purchase or retirement.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Nicola Allen, 6th April 2017

What is the Lifetime ISA?

The Lifetime ISA (LISA) is available to anyone aged 18 to 40. You can put up to £4,000 into a LISA every year until you reach age 50. For every £4 you put in, the government puts in £1.

So, those putting in the maximum each year will receive a £1,000 bonus from the government – equivalent to a 25% interest rate on your savings. And all this can be invested in cash, stocks and shares. Someone who starts investing in a LISA at 18 could, in theory, end up with £32,000 worth of bonuses, assuming they were fortunate enough to pay in the maximum each year.

Does this sit within my overall ISA limit?

Yes. The overall annual ISA limit (£20,000 in 2017/18) covers all payments into a Cash ISA, Stocks & Shares ISA, Innovative Finance ISA or Lifetime ISA.

Can I access my money?

The government is introducing the LISA to encourage people to save for retirement or a house purchase. You can withdraw the money to purchase a first property worth up to £450,000 at any time.

Otherwise (after the first year) you will have to pay a 5% penalty to access the money before you turn 60. Moreover, if you choose to withdraw money early you will have to pay back the government bonus plus any interest and growth on it.

Can I transfer other ISAs?

Yes, you can transfer funds from another ISA into a LISA, up to the maximum of £4,000 per year.

How does it affect the Help to Buy ISA?

You can have both types of ISA but you’ll only get the government bonus once. If you’ve already started saving into a Help to Buy ISA you will be able to transfer your savings into a LISA.

What are the Inheritance Tax rules?

The LISA is good news for parents and grandparents with spare cash who want to help their offspring. The inheritance tax annual allowance is £3,000 per person. A couple could each give their child or grandchild £2,000 to put in (the LISA cap is £4,000 per year) and this would not be subject to inheritance tax.

Supplement your workplace and personal pensions

The best way to save for retirement is still via a workplace pension, with valuable employer contributions and tax relief available.

However, the LISA is an additional savings vehicle that you might want to use to supplement retirement saving if you’ve made the maximum contribution into your pension.

For the self-employed it’s a good deal as they don’t currently benefit from employer contributions into a workplace pension scheme.

Nicola Allen
Investment Adviser

» If you have any questions about the above, please do not hesitate to contact us.

About the author: Nicola Allen

Nicola joined EQ in 2012 from PwC and has over 10 years’ experience in the financial services industry. She has worked in a variety of roles across private banking & wealth management and holds the CII Diploma in Financial Planning. With a real passion for interacting with people, Nicola knows how important it is for clients to feel confident with the financial decisions they make. Most of all, she recognises that every client’s journey is a different one. Nicola enjoys researching design ideas for her home and experimenting with new recipes in the kitchen. She is keen to fit in exercise and attends gym classes throughout the week. Most of all Nicola loves spending as much time as possible with her little niece Lucy!

Search the EQ Library

View articles by topic: