If you’re looking to buy your first home in the next few years, the Lifetime ISA (also known as a LISA) could be the best way to save. With a government bonus of up to £1,000 available each tax year, the LISA has been labelled as a no-brainer for first time buyers.
So how do you know if it’s right for you? We break down the main points to consider.
Introduced by the government in 2017, the Lifetime ISA is designed to encourage people to save for their first home (or retirement) and offers a government bonus of 25% on top of the tax-free savings. This means that for every £4 you pay in you get £1 for free. You can save up to £4,000 per tax year into your Lifetime ISA, giving you a potential bonus of £1,000 each year you save!
With Moneybox, you can choose to contribute to a Stocks & Shares Lifetime ISA and invest your money in the stock market, or save into a Cash Lifetime ISA and earn a great interest rate on top of your contributions and bonuses.
Lifetime ISA pros
- You can continue paying into a Lifetime ISA until you reach age 50.
- If you contributed the maximum amount of £4,000 every year (from age 18-49 inclusive) you could receive £32,000 in bonuses from the government.
- Save up to £4,000 each tax year, no monthly limits.
- You can use the Lifetime ISA to buy a property valued at up to £450,000 anywhere in the UK.
- Bonus is paid monthly, so you’ll earn interest on your bonuses as well as your own contributions.
- Can be used either to buy a first home, or save for retirement.
Lifetime ISA downsides (there’s only a few!)
- You can only open if you are aged 18-39.
- You can use your Lifetime ISA to purchase a first home only after it has been open for 12 months or longer.
- From 6 April 2021, if you withdraw money for any reason other than buying your first home (up to £450,000) or retirement, you’ll pay a government charge of 25% on the the amount you withdraw. This means you’ll get back less than you’ve put in
- If you want to make a partial or full withdrawal from your Moneybox Lifetime ISA at the 20% penalty, we’ll need to have confirmed receipt of your withdrawal request by the following dates. For a Stocks & Shares Lifetime ISA, this date is midday on the 25th of March, and for a Cash Lifetime ISA, this is midday on the 31st of March. This is to ensure your withdrawal completes before the penalty returns to 25%. Any withdrawals actioned after this date (including subsequent withdrawals of pending deposits or government bonuses) will have the 25% penalty applied.
House deposit calculator
Use our house deposit calculator to see how much you need to save each week with a Lifetime ISA and its bonus to get to your deposit target. Simply tell us how much you are aiming to save for a deposit, and when you hope to have your deposit by, then we’ll calculate your weekly savings plan.
Getting a foot on the property ladder can seem like a pipe dream, but with the help of the Lifetime ISA, your first home could be closer than you think. 🏠🔑
The standard 25% government withdrawal penalty means that from 6 April 2021, if you withdraw money for any reason other than buying your first home or for retirement, you will have to pay a 25% government penalty on the amount you withdraw. This means you’ll get back less than you’ve put in. Please note, this excludes investment gains/losses for a Stocks & Shares Lifetime ISA.
If you’re using a Lifetime ISA for retirement, it’s treated differently for tax purposes compared to a pension. Remember, tax treatment depends on your individual circumstances and may be subject to change in future. If you pay into a Lifetime ISA and opt out of your workplace pension, you will not benefit from any employer-matched contributions and it may affect your current and future entitlement to means-tested state benefits. If considering the Lifetime ISA for the purposes of retirement, we recommend you speak with an independent financial advisor.