On the face of it, persuading the Chancellor of the Exchequer to pay a large lump sum into your personal savings account seems like the stuff of fairytales but, after yesterday’s budget announcement, it seems that if you are currently 17 or under and will be 18 in April 2017, you will qualify to open a new ‘Lifetime ISA’ that will accrue up to £32,000 in government contributions up until to your 50th year.
The Lifetime ISA will enable any individual saver between the ages of 18 and 40 at the time they open the ISA to save up to £4,000 per annum in their Lifetime ISA. In return, they will benefit from an annual bonus calculated at 25% of the annual contribution made by the saver. The ISA is billed as a way of helping ‘Generation Rent’ into a new home but it’s use is not restricted to home ownership. In addition to the Government’s contribution, you would hopefully accrue an investment return on the cash balance.
You can take all your savings, interest and/or investment growth and bonus out of your Lifetime ISA tax-free after your 60th birthday. If you're buying a first home you can take it out at any point and get all the perks, as long as you've had it for at least a year.
If you take the money out before you're 60 without buying a first home, you get no bonus and there's a 5% penalty on the amount you withdraw. In this scenario you can make a partial withdrawal and lose the perks on the amount taken, but continue to accrue them on what's left in.
If you are over 40 when Lifetime ISAs are launched then unfortunately you will be ineligible for this instrument. However, you will benefit from increases in the annual investment threshold in personal ISAs. Furthermore, if you are eligible for a Lifetime ISA next year, you will be able to roll in £4,000 per annum to your new Lifetime ISA and qualify for the 25% Government contribution in the normal way.
Interestingly, if you are under 40 and already own a house, the Lifetime ISA's is still available to you, perhaps making you born lucky?
For detailed advice on this new financial product we recommend you speak with an Independent Financial Advisor. This information is still out for consultation and may change in due course.
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