You may recall we sent out a budget summary earlier in the year that included the Lifetime ISA (LISA). To recap the details, this is an ISA for those under 40 years of age and can only be used for retirement (after the age of 60), or for the purchase of a first home. The LISA offers a 25% bonus on savings up to a maximum of £4,000 per year. In some ways it is similar to the Help to Buy ISA, which is now available for first-time buyers and which also offers a 25% bonus on savings up to £3,400 in the first year and £2,400 each following year.
The LISA is not intended to replace the pension by any means, but it could offer a useful holding account for those who have maximised their annual pension allowances or those who want a guaranteed amount of growth per year on a small cash holding. The tax relief on pensions still outweighs the benefits of the LISA, especially for higher or additional rate tax payers, who receive 40% or 45%, respectively, on contributions, whilst basic rate tax payers still get 20%. You can only invest a maximum of £4,000 into the LISA per year, but by investing the maximum you will receive £1,000 for basically doing nothing other than giving them your money – not bad really!
The LISA may be particularly useful for anyone trying to buy their first home. You can hold one LISA per person and a couple can use more than one for a first-time house purchase if buying a house together, so in a year you can save £8,000 between you and have this topped up to £10,000 by the government.
The LISA is due to come into play in April 2017 but the big market providers are concerned about the mechanics of how the product will work and this has slowed approval for the launch of the LISA. Standard Life has already said they will delay the launch of the LISA on their platform until 2018 when all of the details have been clarified, but the Treasury are standing firm and saying it will definitely be with us by April 2017.