The Financial Group
We simplify all those essential financial decisions
THE EDUCATION SECTION May 2017 With each News & Views we look at a particular financial topic in a little more detail. This month it is the Lifetime ISA & the Help to Buy ISA ____________________________ Meet LISA. Starting a relationship with LISA may work out, but beware, it might turn out to be a ‘fatal attraction’. The Lifetime ISA (LISA) is to be a new option for those aged between 18 and 40 saving for retirement or a house deposit. Introduced on 6 April 2017, those eligible are able to save up to £4,000 each tax year and receive a 25% bonus at the end of the year from the government. As with a regular ISA, the money grows tax-free. The pot can be used to buy a first home of up to £450,000 at any time from 12 months after opening the account. Accounts are limited to one per person rather than one per home – so two first time buyers can both receive their 25% bonus when buying together. Alternatively, or in addition, the pot can be withdrawn tax free from age 60 for use in retirement. Any savings added before age 50 will also receive the 25% bonus. A further option is withdrawing the money at any time before you turn 60, but there are penalties. The government bonus, and any interest or growth on that bonus, would be lost - and there would be a 5% charge on top. Ouch! The FAQs about LISA What can I hold within a LISA? Qualifying investments in a Lifetime ISA are the same as for a cash or stocks and shares ISA. Please refer to our ISA guide which explains more about this. Can you have an ISA and a Lifetime ISA? Yes. However, the total amount you can save each year into all ISAs is £20,000 from April 2017 - £4,000 of which can be to a Lifetime ISA. Can I transfer existing ISA’s into a LISA? It is possible to transfer savings from other ISAs as one way of funding a Lifetime ISA. In line with existing rules, transfers from previous years’ ISA contributions will not affect that year’s overall ISA limit. What about Help to Buy ISAs? Help to Buy ISAs will still be available until November 2019. It will be possible to open a Lifetime ISA alongside a Help to Buy Isa. However, it will only be possible to use the government bonus from one of these accounts to buy a first home. Can I transfer my Help to Buy ISA into LISA? During the 2017-18 tax year only, those who already have a Help to Buy ISA will be able to transfer these funds into a Lifetime ISA and receive the government bonus on those savings. Should I still save into a pension if I am between 18-40? The combination of tax relief along with any employer contribution is likely to mean that pensions are in many cases mathematically a better option for those purely focused on saving towards retirement especially for higher earners. However, if enacted, the Lifetime ISA could be used as an alternative, or an addition to, pension savings and allow the younger generation to ‘mix and match’ the advantages of pension contributions with a new, enhanced ISA to maximise savings. For those under 40 facing the difficult choice of whether to save for a first home or for retirement the flexibility of the proposed Lifetime ISA offers a potential solution. Help To Buy ISAs at a glance Help to Buy ISA’s were launched by the Government to encourage people to save for their first home, they will, in time, be replaced by the Lifetime ISA or LISA which offers the same tax advantages as the Help To Buy ISA, but offers the flexibility of saving for either a new home or your retirement, albeit it should be noted the penalties for withdrawal (other than to buy a new home or before age 60) are more punitive on the Lifetime ISA. The key points o Flexible saving for your first home. o 25% tax free from the Government on whatever you save. o Available to those aged over 18 who are saving for their first home. o New plans available until December 2019, with ongoing savings available until December 2029 o Pay in up to £200 per month (£1,200 in your first month) For a detailed overview from HMRC of the lifetime ISA and its interaction with Help to Buy ISA’s click here . As always, please do not hesitate to contact us if you would like further details or information.