The new ISA for under 40’s
The Budget this week gave news of a new Lifetime ISA (LISA) to be launched in April 2017 that will enable young savers to put away money for their first home and their retirement simultaneously. The “LISA” is available to open for anyone under 40 years old and the government will contribute 25% to add to the fund. Find out more here.
A long-term plan for UK retirement
The government have counter-acted initial proposals to reform pension tax relief, in the form of a new ISA product, the LISA, ultimately, which will prove as a testing ground for a future ISA-based pension product, after the market reaction is assessed.
The aim of the LISA is to help young people, currently those under 40 years old, to save for their retirement in a flexible way. Many people under 40 haven’t had a good deal from the pensions system to date so this initiative is aimed at this particular segment of the population.
The ISA allows a maximum of £4,000 per year savings of which the government will contribute a maximum of £1,000.
Key points of the LISA
- Available from April 2017 for anyone between age 18 and 40
- Maximum annual contribution of £4,000 per tax year
- There will be no monthly contribution limit
- Government will contribute 25% of contributions at the end of the tax year, up to the maximum of £1,000
- By adding the contribution each year, instead of at the end of the term, it means interest growth is also included within the ISA investment
- Savers can invest and receive the bonus 25% up until the age of 50
- There is a lifetime limit of £128,000 contributions – the maximum one ISA holder can invest in their lifetime
- Therefore, the maximum the government will invest is £32,0000
- Funds can be withdrawn from the ISA to buy a first home, worth up to £450,000 at any time after 12 months from the account opening
- Funds can be withdrawn from the ISA for any other purpose after age 60
- Total contributions will be included in the overall £20,000 ISA limit
- It will be possible to contribute more than the £4,000 annual allowance, or contribute past 50 years old, but the 25% government bonus won’t apply
This chart explains how the LISA works:
Opening a LISA
- Opening a LISA will be similar to opening any regular ISA.
- It will be possible to open multiple LISA’s but contributions can only be made into one LISA in any given tax year.
- Investors will be able to choose between contributing to a Cash ISA or a Stocks & Shares ISA
- It will also be possible to transfer funds between providers to maximise opportunities for the best deals – a 30 day limit applies
Using a LISA for a home deposit
- 100% of the funds can be withdrawn to fund a home purchase, after the first 12 months
- The home must be a first-home, located in the UK and valued at £450,000 or less
- Multiple LISA’s can be used to fund a home purchase if buying jointly
- The LISA must be for a residence not a buy-to-let
Dental & Medical Financial Services can give advice and guidance on the new LISA and other ISA products that are already available. Call to speak to a professional adviser.
Tel: 01403 780 770