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Facts about lifetime ISAs

Facts about lifetime ISAs

If you’re planning to retire or buy a home, you might want to consider opening a lifetime ISA. If you are unsure about the lifetime ISA rules, this needn’t be a problem. Read on to find out everything you need to know.

1. There is an age limit

In order to open a lifetime ISA (LISA) you must be 18 or over but under 40. You must make the first payment into your account before your 40th birthday.

2. There are Lifetime ISA rules about the savings limit

You can save up to £4,000 in a LISA every financial year until you reach the age of 50. The amount you save in a LISA counts towards your total annual ISA limit. For the tax year 2021/22, the total ISA limit is £20,000.

So, for example, if you save £4,000 in a LISA, you could save up to £16,000 in another ISA product.

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3. You will receive a government bonus

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

So if you save the maximum LISA allowance of £4,000, the total amount deposited within the year will be £5,000.

4. You can choose from two different types

You can open a stocks and shares LISA, a cash LISA or a combination of the two. The combined amount you can deposit in the financial year will still be £4,000.

5. You can withdraw without penalty for any of three reasons

According to the Lifetime ISA rules, you can make withdrawals without penalty under the following circumstances:

  1. To buy your first home
  2. When you are aged 60 or over
  3. If you are terminally ill with less than 12 months to live

6. You pay a penalty for unauthorised withdrawals

If you make a withdrawal for any other reason, you will have to pay a 25% penalty on the amount withdrawn.

This is because the LISA is a scheme designed for buying a home or retirement. A withdrawal for any other reason is considered to be unauthorised, and as such the government reserves the right to charge a penalty.

So, if you have made a deposit of £1,000, the government will give you a bonus of £250. Assuming no growth, the total amount in your LISA will be £1,250.

If you choose to make an unauthorised withdrawal of the total amount, the government will take 25% of the total. This is 25% of £1,250, amounting to £312.50. So you will be charged more than the original government bonus of £250.

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7. There are Lifetime ISA rules when buying your first home

You can use your LISA to buy your first home as long as the following lifetime ISA rules are met:

  • The property costs £450,000 or less
  • The purchase is made with a mortgage
  • You make the purchase at least 12 months after your first payment into your LISA
  • You use a licensed conveyancer or solicitor to make the purchase on your behalf.

8. Your Lifetime ISA ends on your date of death

According to the lifetime ISA rules, if you die, there is no charge to withdraw the funds from your account.

Take home

A lifetime ISA is a good option to save towards buying a home or retirement. Further information is available from the website. You can also check out our  ‘What is a lifetime ISA?‘ article.

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Compare stocks and shares ISAs

If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of some of the top stocks and shares ISAs.

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