The Lifetime ISA: Your Route to Saving for the Future?

The Lifetime ISA or LISA is a profitable, tax-free option if you’re thinking of saving for your first home or retirement. Despite its introduction in 2017, it still remains a relatively unused relief. Unbeknown to most savers, the Lifetime ISA offers one very important advantage over Cash ISAs and Stocks and Shares. Here we reveal the facts behind this relatively new ISA product so you can get to work saving for your future…

What is a Lifetime ISA?

Described as a ‘tax-free wrapper’, the Lifetime ISA may be the latest ISA product on the block, but it offers many more benefits than standard Cash ISAs and Stocks and Shares. In addition to being able to save tax-free, the government tops up any money you save with a 25% bonus each tax year.

It was recently announced that this will continue during the 2019/20 tax year. You can save up to £4,000 each year with a Lifetime ISA, which means you’ll get up to £1,000 for free every tax year!

What’s the catch?

There isn’t a catch per say but as the name suggests, the Lifetime ISA is designed for a lifetime of saving. The ISA is to be used to save one of the most important purchases you’ll make during your lifetime, such as the purchase of your first residential property, or as retirement savings for later life.

If you intend to use it to make your first step onto the property ladder, you need to be a first-time buyer who’s never owned a property. This includes a property at home or overseas, one you’ve inherited or a residential property owned by your company or trust. With a Lifetime ISA for retirement, you’ll need to save a good amount of money every year to really make the most of this ISA’s incentives. You shouldn’t access ISA cash until you reach the age of 60. It is possible to access cash before the age of 60, even if you don’t intend to purchase a property or use the money for retirement. You will have to pay a penalty of up to 25% for the withdrawal, meaning you could end up missing out on the free cash if you take funds early.

You don’t have to choose between using your Lifetime ISA for your first home or your retirement. You can use it for both by keeping it open after you’ve made your property purchase.

Is a LISA right for me?

Not just anyone can open a Lifetime ISA. You have to be over the age of 18 and under 40 to open a LISA. It’s a great idea to open one if you do meet the criteria with £20,000 up for grabs courtesy of the free, annual bonus. Whilst it provides a catch-free boost for first time buyers, some people who intend to use a LISA to save for retirement may be better off with a pension. A Lifetime ISA is best suited to a self-employed basic rate taxpayer rather than an employed person or higher rate taxpayer.