Lifetime ISAs – also known as LISAs – are a savings scheme to help those looking to save up money for their first home or their retirement. The Government-backed savings can earn you a bonus on your savings. There are a range of savings options – and a range of different ISAs available.
You can open a Lifetime ISA, a cash ISA, a stocks and shares ISA and an innovative finance ISA in each tax year.
There are limits on the amount you can pay in, with a bonus issued from the Government each month.
Help to Buy ISAs have now been phased out, with new accounts unable to be opened as of November 30, 2019.
You will still get a bonus and can pay into your Help to Buy ISA, but no new accounts can be opened.
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Can I still open a Lifetime ISA?
Lifetime ISAs are still available through a range of banks, but there are limits on age and the amount of funds you can deposit.
As the Help to Buy ISA is no longer available, money expert Martin Lewis explained when speaking on BBC Radio 5 Live: “The only bonus money for first-time buyers is a Lifetime ISA that is available for people aged 18 and 40.
“You can open it, you put your money in there and you get a 25 percent boost when you use it towards buying your first home.”
You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both.
You can open a Lifetime ISA with any bank, building society or investment manager that offers the product.
To open a Lifetime ISA you need to be:
- between the age of 18 and 40
- a UK resident or a Crown servant (for example, a member of the armed forces serving abroad).
You can continue paying into a Lifetime ISA until you are 50.
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How does a Lifetime ISA work?
When paying into your Lifetime ISA, bear in mind you can put up to £4,000 into a Lifetime ISA in a tax year.
You will be paid a bonus of 25 percent from the Government which will be paid into your ISA monthly.
The maximum bonus you can earn in a tax year is £1,000.
ISA accounts are linked, and there is an annual ISA allowance which can be shared each year between your accounts.
For example – the annual ISA allowance for 2019 was £20,000, so you could pay £1,000 into your lifetime ISA and then the remaining £19,000 across other ISA products.
You can access your lifetime ISA and the Government bonus without having to pay any tax if
- you reach the age of 60
- you are diagnosed with a terminal illness
- you’re buying your first home and your account has been open for 12 months
You will pay a withdrawal charge if you take money out for any reason other than the three mentioned above.
The charge is 25 percent of the amount withdrawn.
If you die without withdrawing your ISA, the money is passed on to your beneficiaries without penalty.
However, it will not continue as an ISA and instead would form part of the estate in order to comply with inheritance tax.
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