Help-to-buy ISAs may no longer be an option however, if you’re still considering opening something to help save money for your future house The Lifetime ISA might be an option for you.
What is a Lifetime ISA?
The Lifetime ISA (LISA) is a new tax-free savings or investments account designed to help those aged 18-39 buy their first home or save for retirement. It is the latest member of the Isa family, joining cash Isas, stocks and shares Isas, junior Isas, Help-to-Buy ISAs and innovative finance Isas in an increasingly complex landscape for savers.
The Lifetime ISA is a longer-term tax-free savings account that gives you a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year.
The Lifetime ISA It's been available since 6 April 2017 and is available to be opened by anyone aged 18-39 (if you turn 40 on or before 6 April 2017 you won't be eligible), although only first-time buyers can use one to buy property under age 60.
How does a Lifetime ISA work?
For every £4 you save, the government will add £1 (worth up to £1,000 every tax year until you turn 50 years old).
You are able to save up to £4,000 a year is eligible for the 25% bonus (you can add more but it won’t receive a government contribution).
The bonus is paid every month, so that you benefit from compound growth.
Is there any limitations to opening a Lifetime ISA?
There may be a few limitations on when you can withdraw from your ISA once investing into it, how much you can invest in other places and penalties for early withdrawal.
You are still able to invest in either cash or stocks and shares when you have opened a Lifetime ISA, although your overall annual ISA limit is £20,000 and will include any payments into a cash Isa, stocks and shares ISA, Innovative Finance ISA, or Lifetime ISA.
You can save up to a maximum of £4,000 a year, and can continue to pay into it until you reach 50 years old. Your account can remain open until you chose to access the money however you can’t make any more payments into it.
What are the restrictions with withdrawals?
The cash you save must only be withdrawn to be used to purchase a first property worth up to £450,000. If you use the money to purchase a first property, or withdraw after the age of 60, you won’t be penalised. If you do wish to withdraw to spend on something other than your first property before the age of 60, you’ll be hit with a 25% penalty when you withdraw your cash.
Your Lifetime ISA must be open for at least 12 months before you can withdraw funds from it to buy your first home.
A withdrawal charge won’t apply if you’re using it towards a first home, aged 60 or terminally ill with less than 12 months to live.
What if I’ve already opened a Help-to-Buy?
If you have a Help to Buy ISA, you can transfer those savings into your Lifetime ISA or you can continue to save into both – but you’ll only be able to use the bonus from one to buy your first home. You can transfer the balance of your Help to Buy ISA into your Lifetime ISA at any time if the amount isn’t more than £4,000.
If you’re buying with another first-time buyer, and you each have a Lifetime ISA, you can both use your government bonus. If you buy a house with someone who isn’t a first-time buyer, they’ll not be able to use their Lifetime ISA without a withdrawal charge.