In the governments most recent budget the chancellor announced plans for a new Lifetime ISA which will become available by April 2017. The lifetime ISA is not for everyone, there are some very clear caveats, only being able to be used to buy your first home or saving for retirement.
One of the major differences is obviously that this lifetime ISA is not solely aimed at those looking to purchase property, whereas the Help to Buy ISA is just that. With the new lifetime ISA the government is essentially providing another means of helping out those who are in the 18 – 40 age bracket and to qualify you will need to be of the eligible age, at least 18 and under 40 in April 2017.
At this time the government are still consulting on what the overall figure allowed to be saved into the lifetime ISA will be, however initial statements put the figure at £4,000 per year, although this is subject to change so it could very well end up being more. By saving £4,000 a year the government will then add £1,000 which is paid at the end of each tax year. When you are ready to remove your money from the ISA, whether it is to buy a home or once you reach the age of 60 any bonus for that tax year will be paid out at the point of withdrawal.
There are two ways you can take the money out of your lifetime ISA, either tax-free after your 60th birthday or if you are buying your first home you can take it out at any point and get all the same perks provided you have held the account for at least a year. If you want to remove any money before you turn 60 and it is not towards buying your first home then you will get no bonus and be charged 5% on the amount you withdraw. You will still be able to pay into the lifetime ISA and another ISA’s you may hold, providing you do not pay in more than the current £20,000 yearly limit (which could change in future years).
So how does the Lifetime ISA differ from that of the Help to Buy ISA which the government launched in December 2015?
Just like the Help to Buy ISA you will be able to save into the account and the government will top this up with 25% of what you save yearly. For those of you wanting to buy your first home you might be thinking that this sounds awfully like the Help to Buy ISA which first time buyers can currently take advantage of. Both give a 25% government bonus on savings but where the lifetime ISA pays this bonus out yearly the Help to Buy ISA only applies its bonus at the point of property purchase.
The Help to Buy ISA limits you to buying a house up to £250,000 (or £450,000 in London), whereas with the Lifetime ISA you can use it to buy a home up to £450,000, so if you are looking for purchase property of a higher value the Lifetime ISA might be the one for you. With the Lifetime ISA not being introduced until April 2017, if you plan to buy before April 2018 then you will need to stay with the Help to Buy ISA as you need to have the Lifetime ISA open for at least 1 year before purchasing a home. You can of course use both, by using your Help to Buy ISA to purchase your first home while using your Lifetime ISA to save for your retirement.