Many of us are aware of the basic ‘ISA’ (Income Savings Account). The idea is that individuals may invest cash, up to a capped amount, every year either in a savings account, stocks and shares or even in more innovative peer-to-peer lending schemes.
The capped sum is £20,000 per annum. Returns on this capital are tax-free.
Various schemes have been introduced by the government in an effort to enable first-time buyers to get into the market with mixed success. Help to Buy mortgages being one of the most prominent schemes, allowing buyers of new homes to borrow up to 25% of the home’s value as an equity loan. In tandem with this, the ‘LISA’ has been introduced for younger individuals in the hope that by incentivising saving, young people will be encouraged to build a lump sum, either for the purchase of a home or for other reasons.
The ‘LISA’ may be opened by anyone between the ages of 18 and 39. As with other ISA’s, the annual investment limit is £20,000 per annum and return on the sum invested is tax-free.
The LISA differs from other ISAs in that the government are offering an annual bonus of up to 25% of the annual sum invested, up to £1,000 per annum. The ‘LISA’ can be kept open until the individual’s 50th birthday and, in addition, you will be entitled to a £10,000 bonus if you pay in the maximum £20,000 per annum every year between the ages of 40 and 50.
Your LISA can be used to help you buy a home or as part of your retirement fund. You can also withdraw cash for other reasons, but there will be a charge for this equivalent to *25% of the sum withdrawn, up until the age of 60. An exception to this would be if you were diagnosed with a terminal illness.
It’s worth noting that the bonus is calculated monthly on the sums introduced by the 6th of each month, so to maximise the bonus you’d do well to make sure you time your direct debits well!
*Following HM Treasury’s announcement on the 1st May the government withdrawal charge will be reduced from 25% to 20% for withdrawals between 6 March 2020 and 5 April 2021.
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