The Lifetime Individual Savings Account (ISA) is aimed at young people who are looking to save money in a flexible way. Finding a savings account that grows with you and adapts to the different stages of your life isn’t easy but it’s exactly why the Lifetime ISA has been introduced.
So what is it? And how does it work? More importantly, is it for you?
Here we discuss in simple terms, some of the common questions about this new way of saving.
- I need to save for now – but also for later. Will this help?
When you are struggling to get your finances in order now, how you will survive after your retirement is probably the least of your worries. Most people below the age of 35 do not have a real retirement or pension plan and are occupied with trying to establish their current lifestyle, build their family or buy their first home. This is where the Lifetime ISA comes in – it has been specifically designed to allow you to save for your present situation and your retirement at the same time. All you need to contribute is up to £4,000 each year – which the Government will then top up with a 25% bonus. Worked out simply – you could pocket up to £1000 from the Government each year with a Lifetime ISA.
- I need an easy, flexible savings account where I won’t get caught out.
The Lifetime ISA has been designed to work alongside ISA or other savings. In much the same way, you can contribute to your Lifetime ISA from your post-tax income but in this case, the growth you see in the future will have better tax value. This means that you will be able to save and withdraw funds without worrying about losing economic efficiency. It’s a very flexible product.
- Am I too old for it? Or not old enough?
From April of 2017, all those under the age of 40 will be eligible to open a Lifetime ISA and contribute towards it from age 18 up to age 50. It has been aimed at the younger market in order to promote financial security for this generation now and in the future. People in this section of the market are known to worry about the future but lack the financial knowledge to know how to make themselves secure.
- What if I want to buy a house though?
Buying property is a large financial commitment and common for the under 40s fortunate enough to get on the property ladder. With the Lifetime ISA, drawing money out for a house deposit will not leave you out of pocket though, provided you have purchased your home and contributed in the same tax year, you can still receive that year’s bonus.
- I already have an ISA? Can I still have a LISA?
Well, yes you will. You will be able to transfer funds from an existing ISA towards your Lifetime ISA contributions. And you will also be able to contribute to your Lifetime ISA as well as other cash ISAs, savings and investments in the same year. So put simply – as long as you commit to saving, the Lifetime ISA has no contribution restrictions.
- Ok so all this saving, when can I take the money out?
The Lifetime ISA is designed to enable you to save from a young age up to your retirement. Once you hit 60, you will be able to make full or partial withdrawals of your money. This will be paid to you tax-free, leaving you to enjoy the money you put away for yourself years before. Happy days!
Disclaimer: The information contained within this article are provided as illustrative purposes only based on legislation at the time of publication. Nothing in this article should be construed as advice or guidance to one’s personal situation. The value of your investments may go up and down, similarly, other aspects of your wider lifestyle and financial context may impact on your objective. In a nutshell, don’t rely on blogs and the articles for personal advice, and always seek advice from a qualified professional.