Lifetime ISA launch
The new Lifetime ISA, that will help those aged between 18 and 40 to save for a new home or for their retirement, is expected to be available from April 2017. The legislation necessary to bring about the introduction of this new flexible savings plan is currently progressing through the various parliamentary stages.
The new scheme will see the government provide a bonus of 25% on yearly savings of up to £4,000 until the savers 50th birthday. Any savings put in before the Lifetime ISA holders 50th Birthday will benefit from the 25% bonus. This could mean an extra £1,000 for every £4,000 saved annually from the age of 18 to 50. In total this could see savers who invest the maximum contributions of £128,000 receive a maximum government bonus of £32,000.
The savings and bonus can be used to purchase a first home worth up to £450,000 anywhere in the UK or to save towards retirement. Savers will be able to withdraw the savings tax-free after their 60th birthday. The funds can remain invested after age 60 and any interest and investment growth will be tax-free. The money can be withdrawn earlier (for something other than the purchase of a first home) but the government bonus will be lost and a 5% penalty will be levied.
Any contributions to a Lifetime ISA will be part of the overall ISA annual contribution limit. This limit will increase to £20,000 from April 2017. The government bonus will be paid annually at the end of the tax year.