Everything you need to know about a Lifetime ISA.

What can it be used for?

Retirement (access from the age 60).
Buying your first home i.e. you have not had a mortgage before. It can only be used for residential property i.e. to live in so you cannot use it for Buy To Let investment or holiday homes .
- You will need to have your LISA account open for at least 12 months before you can use it for a house purchase.
- The value of the house has to be below £450,000.
- It is also advised that if you are buying a property then you shouldn’t invest it into stocks or shares but cash saving LISA.

What age do you have to be?

18 – 39 (so you can open a LISA account a day before you turn 40).
Age is one criteria but you must also be a UK resident to qualify for this.

How much is the bonus?

It is a 25% bonus you will receive on any money you put within a 12 months period. The maximum amount you can put, each tax year (6th April to 5th April) is capped at £4,000, roughly £333 per month.
The maximum bonus you can earn in a tax year is £1,000 (0.25 x £4,000).
These bonuses are added each year from the ages 18 – 50. From 50 – 60 government doesn’t add any more bonuses. Your investment can still grow or shrink if you have investment in the stock market.
Bonus payments are made on a month by month basis but typically expect up to 5 weeks.
For example, if you started from the age 18 and contribute the maximum amount each year until you reach 50, you will receive £32,000 bonus over that time.
The amount that you put in a LISA is linked to your annual cash or investment ISA. This means that if you put the maximum amount (£4,000) each tax year, you will lose this allowance from the total £20,000 ISA i.e. £20,000 – £4,000 = £16,000.

Can myself and a partner open one?

Yes, both of you can have a separate LISA account and it can be used for a deposit or investment.
Each person can make use of their allowance and this will increase the overall deposit you can have, if you decide to use it for a property purchase.

Will this affect benefits in the future?

Yes. This is because the money you put in a LISA is treated like any other savings account. This means any means-tested benefits could be impacted when calculations are being done. For example, for Employment and Support Allowance or income-based Jobseeker’s Allowance, if you have more than £16,000 saved, you won’t be eligible.

What if I take the money out for other reasons?

You will end up losing the 25% bonus. It is also 25% of the money you are withdrawing so you end up paying more than what you put in. This is roughly £6 lost for every 100 pounds you are withdrawing.
Your money is not locked unlike a pension where you have to reach a certain age however you need to keep in mind that unless you are purchasing a property, any other reasons you will have to pay a penalty. The only exception is if you are terminally ill.

Pension or LISA

For basic rate tax payers, a LISA is better but keep in mind it is limited and doesn’t include employer contributions. This is money you put after you have paid tax. If you are in employment then a better strategy would be to make payments towards your pension making use of your employer contributions.
Those that are higher rate tax payers would benefit from having their contributions put towards their pension. This is due to the higher rate of tax relief.

Are you locked to one provider?

No, you can transfer to other providers. This is great news because it means you can still keep your money and not lose allowance from previous years.

Savings LISA

In addition to the bonus you get from the government, you can also get a small amount of interest if you decide not to invest it in the stock market. Usually a good idea if you are planning to use it to buy a house. Investments in the stock market are for 7 years or more.
This is the cash LISA format.

What happens if I die?

The money within the LISA will form part of your estate for inheritance tax purposes, where as a pension doesn’t.

Is it easy to set-up?

It takes 5 – 10 minutes to set-up, lots of banks and investment platforms offer this. For example, the following companies provide investment Life Time ISAs:
- AJ Bell
- Hargreaves Lansdown

It is important, when deciding a platform to use, that you are happy with what you are being offered and you consider the fees involved. There will be two types of fees each platform will charge, one will be for allowing you to invest into funds or stocks which is know as a platform fee and the second method is the fee charges by the fund manager or index.

Robot investing Apps:

The two companies are good but keep in mind that they will charge a lot. I personally like to manage my own money and would use AJ Bell or Hargreaves Lansdown. In terms of cost, AJ Bell win.

Cash LISA

Nottingham building society (only £10 needed to open an account)

Finally, it is always good to open an account with a small amount invested because you are giving yourself a good chance and later on if you decide to buy a house, you can quickly add money to the LISA to get the bonus and 12 months would have hopefully passed so there would be no issues with eligibility.

Link to use for further reading:

https://lifetimeisa.campaign.gov.uk/

Information correct as of 18-02-21.