Martin Lewis offers This Morning viewers advice on Lifetime ISAs
Lifetime ISA saving can help those who are looking to buy a house in the future, a goal which can seem more distant for those spending on rent. With rent often forming a major outgoing for individuals who do not own their own home, it can be difficult to put money aside for the goal of purchasing a property. However, a Lifetime ISA could be an appropriate solution to help Britons in their progression towards this outcome.
Lifetime ISAs are commonly known as LISAs and are established for two important life milestones – purchasing a first home or saving towards later life.
To open a Lifetime ISA, a person must be 18 or over, but under the age of 40 in order to be eligible.
People will be able to put up to £4,000 each year into a LISA under current rules until reaching the age of 50.
However, while a Lifetime ISA is a good savings vehicle, it is undoubtedly the Government bonus which makes this opportunity so attractive.
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For savings deposited into a Lifetime ISA, the Government will add an additional sum on top to help those saving towards certain goals.
The Government bonus is worth 25 percent up to a maximum of £1,000 per year, a sum which could significantly help Britons progress towards homeownership.
Once the Government bonus is paid into a person’s Lifetime ISA account, they will be able to invest it just as they would for other savings.
Individuals will also be able to earn interest or get investment growth on the Government bonus.
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A Lifetime ISA Government bonus is automatically added to a person’s Lifetime ISA account every month.
However, while Lifetime ISAs could help people saving towards a home, or indeed retirement, there are also key withdrawal rules to bear in mind.
Britons will only be able to withdraw the money in the following circumstance:
- To help purchase a first home worth up to £450,000
- From the age of 60
- If a person becomes terminally ill
However, if a withdrawal is made for any other reason, Britons will be forced to pay an exit charge.
This is what is known as making an “unauthorised withdrawal” and the Government reserves the right to recoup its bonus.
At present, the Lifetime ISA charge has been reduced to 20 percent due to the ongoing COVID-19 crisis.
However, traditionally the charge would stand at 25 percent for those making a withdrawal.
The 25 percent charge is comprised of the 20 percent Government bonus plus an extra five percent charge payable for withdrawing.
But the lowered withdrawal charge is set to revert back to 25 percent on April 6, 2021, leaving just months on the current policy.
Understandably, the Lifetime ISA withdrawal charge could set Britons back on their journey towards saving for a home.
For this reason, then, some are calling upon the Government to reconsider its approach to the charge.
Investment service Hargreaves Lansdown has started a petition to keep the reduced LISA withdrawal charge, urging the Treasury to make this permanent.
Indeed, this is a sentiment shared by investment platform AJ Bell.
Tom Selby, senior analyst at AJ Bell, commented on the matter saying: “The increase in the exit penalty will likely be happening at the same time as millions of employees are being moved off furlough support and facing huge financial insecurity.
“While some jobs will remain viable as the UK economy hopefully begins to open up, many will sadly be lost. Anyone facing unemployment at this time may well need to use their savings to make ends meet – including money set aside for the future in a Lifetime ISA.
“As a minimum the Government should keep the exit charge at 20 percent for the 2021/22 tax year. But a preferable solution would be to make the reduction permanent, meaning the aim of the charge would simply be to return the upfront bonus.”
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