Lifetime ISAs – The new pension/first home savings account

21st March 2016

The 2016 Budget introduced an interesting new way to save for buying your first home or funding your retirement.  

The Lifetime ISA is a savings account available for anybody between the ages of 18 and 40 from April 2017.   The big draw is that the government will top up 25% of anything you save in this each year.  The maximum you can save in every year is £4,000 so potentially £1,000 a year can be earned as a bonus for each year of saving. 

The savings in this account can be accessed only upon buying your first home or reaching the age of 60 (or being diagnosed with a terminal illness).   If the funds are accessed at any other point then all the 25% bonuses will be lost and you will also receive a 5% charge to withdraw the funds. 

As attractive as the 25% bonus sounds this is effectively the same amount of relief a basic rate tax payer would receive when paying into a personal pension scheme.   A higher rate tax payer would receive more of a ‘bonus’ by paying into a pension.

However this scheme does have the advantage of all of the funds available upon reaching 60 being available tax free (compared to pension where only part of it would potentially be), and having the ability to fund a deposit on a first home which will incentivise parents to help their children to save for a property purchase.

I believe this is a much more attractive proposition than the help-to-buy ISA launched last year and expect it could be a popular scheme when available next year.

Alex Koupland | Brighton Accountant | Plus Accounting

If you would like to discuss this further, please get in touch on 01273 701200 or info@plusaccounting.co.uk

 

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. 

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