Lifetime ISAs (LISAs) can be opened by anyone aged 18 to 39 and offer a 25% bonus on savings used for retirement or buying a first home. If you pay in the maximum of £4,000 this tax year, the government will give you a bonus worth £1,000. Find out whether taking out a Lifetime ISA is the best option for you.
What Is A Lifetime ISA?
The lifetime Isa (LISA) is a tax-free savings or investments account designed for people who are aged 18-39. The savings are supposed to go towards either buying a first home or retirement.
The government launched the Lifetime ISA in 2017. You can deposit up to £4,000 a year into it after which the government pays an annual ‘bonus’ of 25% on the contributions you have made. This means you could earn as much as £1,000 worth of bonus a year for free.
You can choose to open a cash Lifetime ISA, an investment LISA or a combination of the two. Here’s how they work:
- You can put a maximum of £4,000 into a Lifetime ISA each tax year.
- You’re paid a 25% bonus from the government, which will be paid monthly.
- The maximum bonus you can earn in a tax year is £1,000.
- The amount you pay in is linked to your annual ISA allowance (£20,000 for 2023/24) – for example, if you pay £1,000 into your Lifetime ISA, you can still pay £19,000 into other ISA products.
- Any bonus you earn doesn’t count towards your ISA allowance.
- You can open a Lifetime ISA with any bank, building society or investment manager that offers the product.
- You can hold multiple Lifetime ISAs, although you can only pay into one each tax year. You can also transfer your Lifetime ISA to another provider, for example to get a better interest rate.
- You can open a Lifetime ISA, a Cash ISA, a Stocks and Shares ISA and an Innovative Finance ISA in each tax year.
- You can continue paying into a Lifetime ISA until you’re 50.
How Do I Claim My Bonus?
Your bonus, which can also generate interest, is based on payments you make from the 6th of the month to the 5th of the following month. A government bonus will be claimed by your Lifetime ISA manager and added into your account each month. You don’t need to do anything.
Using Your Lifetime ISA To Buy Your First Home
When your account has been open a year or more, you can withdraw funds to buy a home costing up to £450,000.
The property you’re purchasing must:
- Be in the UK
- Be the first, and only, home you own
- Be where you intend to live (not a buy to let)
- Be purchased with a mortgage.
If the above criteria are met, your withdrawal will be exempt from charges.
You shouldn’t just withdraw money from your Lifetime ISA for any old reason because this will incur a charge. Make sure you find a conveyancing solicitor who will work with your Lifetime ISA provider. You will complete your completed ISA form through your conveyancer, permitting you to withdraw from your Lifetime ISA to buy your home. Your money is usually transferred within 30 days from when your ISA provider receives the completed forms.
Find a conveyancing solicitor – you can be sure of the best price and a quick and simple service for a quicker move.
Using Your Lifetime ISA To Buy A Home
Your Lifetime ISA funds can be used at any stage of property purchase. Home can put the funds towards the deposit in which case, the purchase must be completed within 90 days of your residential conveyancing solicitor receiving the funds. Find a conveyancing solicitor here.
In some cases your conveyancer can write to HMRC for an extension if it takes longer than 90 days to complete your property purchase.
If you’re purchasing with another first time buyer with a Lifetime ISA, both of you can use your ISA and bonus towards the sale. If the other person IS NOT a first time buyer, you can still use YOUR Lifetime ISA, just not theirs.
Lifetime ISAs can also be used towards buying shared ownership properties but the total price of the property must still be under £450,000.
Do I Have To Use A Lifetime ISA To Buy A Home?
No. If you don’t want to use your Lifetime ISA to buy your first home, you can only withdraw funds without incurring a charge for the the following:
- If you become terminally ill
- You are over the age of 60
In any other circumstance, your withdrawal will incur a large 25% fee.
If you need a conveyancer in who can help you with all aspects of a lifetime ISA Find a conveyancing solicitor today.
Lifetime ISAs V HelpTo Buy ISAs
Lifetime ISAs are similar to Help to Buy ISAs since they’re both designed to help first time buyers and they offer government top up bonuses of 25% on certain limits. However, Help to Buy ISAs are now closed to new applications. Existing Help to Buy ISA account holders can still save in their accounts until November 2029 and claim their bonus for an additional year after that.
Further differences between Lifetime ISAs and Help to Buy ISAs include:
- Savings Amounts – With a Lifetime ISA, you can save up to £4,000 a year. With a Help to Buy ISA, the maximum savings £2,400 a year (£3,400 in the first year).
- Payment Times – With a Lifetime ISA, your top up bonus is paid monthly. With a Help to Buy ISA, your bonus can only be collected between exchange of contracts and completion and can be used towards your overall or mortgage deposit, but not at exchange.
- Withdrawal Charges – With a Lifetime ISA, withdrawing before the age of 60, except for a first home purchase or terminal illness, incurs a 25% charge. With a Help to Buy ISA, there are no extra charges on withdrawals but bonuses are only paid for first home purchases.
- Property Purchase Price – With a Lifetime ISA, the maximum property price is £450,000 anywhere in the UK. With a Help to Buy ISA, you can only spend up to £250,000 (£450,000 in London).
You are allowed to transfer your Help to Buy ISA into a Lifetime ISA, though those funds will count towards your yearly Lifetime ISA limit.
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