Lifetime ISA (LISA)

Most women, it is said, reach the age of 40 with trepidation. Not so Claer Barrett of the Financial Times, who has said she will be ‘ecstatic’! This is because her 40th birthday occurs a week after 5thApril 2017, meaning she will only just qualify for the new Lifetime ISA (LISA).

The rules say that as long as she is between the ages of 18 and 40 on or after 6th April 2017, she can open up a LISA account and keep contributing the maximum amount – £4,000 per annum – and receive a 25% bonus (£1,000 per annum) every year until she reaches the age of 50.

If you already have a help-to-buy ISA, you can transfer those savings into a new 2017 LISA.

The caveats for LISAs are:-

  • The maximum conventional limit for an ISA – going up to £20,000 from 6th April 2017 – is reduced by the amount you put into a LISA.
  • You are restricted as to how you can use your LISA:-

  1. You can either use the fund to buy your first property (up to £450,000 in value); or
  2. You can keep your LISA until you reach the age of 60 and treat the funds as you would a pension. (NB if you dip into your LISA fund without using it to buy your first property, you will incur a very hefty penalty).

Anyone within and outwith the family can make contributions to a LISA; such contributions are Inheritance Tax (IHT) free if they are within the annual allowance (£3,000 per annum) or if they are exempt as ‘gifts out of normal expenditure’.

Finally, LISAS are limited to one person rather than one home – so two first time buyers can receive a bonus when buying together. (Comment – if you are eligible and can afford it, LISAS are a ‘no brainer’ for first time buyers; as a vehicle for retirement savings, you should seek further advice).