A Lifetime ISA, like other ISAs (Individual Savings Accounts) is a savings account, the interest on which is shielded from tax. The ISA may be a cash savings ISA or hold shares, etc. At the time of writing each qualifying individual may save up to £20,000 per annum.
The Lifetime ISA is different to the basic ISA in that it has certain additional qualifications meaning that it’s not open to all. It also has one very attractive benefit, namely a substantial Government Bonus every year calculated at 25% of the sum invested every year, up to a maximum of £1,000 per annum. The maximum sum you may invest in a Lifetime ISA is currently £4,000 per annum.
To qualify for a Lifetime ISA you must be aged between 18 and 40 when you open it and you must be resident in the UK for tax purposes or qualify under an exemption (for example, be on overseas diplomatic service).
After the age of 50 you may no longer contribute to your Lifetime ISA and annual Government Bonus’ will cease. You may withdraw funds from your ISA on or after your 60th birthday OR when buying your first home. There is also an option to withdraw if you are unfortunate enough to have been diagnosed with an illness and have less than 12 months to live. If you want to withdraw money before your 60th birthday and you are not buying a first home or otherwise qualify under the abovementioned health clause, you can still do so but you will lose the accrued 25% Government bonuses, plus a ‘withdrawal charge’.
The good news is that if you are buying a first home with your spouse you may both save in your own Lifetime ISAs.
The idea behind the lifetime ISA is that it encourages long term investment and provision for old age or for investment in your first home. The bonuses available seem attractive, but it’s worth noting that this is a long term savings/investment option and not something for the shorter term. For this eventuality, a standard ISA may be more applicable.
The annual £4,000 Lifetime ISA limit forms part of your annual ISA investment limit (currently £20,000 at the time of writing).
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