Quick intro to lifetime ISAs
- They're individual savings accounts designed to help you save for your first home or save extra money for retirement.
- You need to be aged 18-39 (inclusive) to open one.
- If you’re using the money towards buying a property, it’ll need to be your first home (you can’t have owned a home before), be bought with a mortgage and not cost more than £450,000.
- You can save or invest up to £4,000 each tax year, and the best part – the government will top up everything you put in by 25%.
- There’s a withdrawal penalty charge if you don’t use your LISA the way the government intended.
1. You can get up to £1,000 a year from the government
This is probably the most important thing to know: the government pays in when you do, topping up everything you pay in by 25%.
So, if you put in the maximum £4,000 each year, you’ll get an extra £1,000 each year added to your lifetime ISA.
For many people this is a gamechanger - putting money away while also tackling rising costs isn't easy, so this extra boost could really make a difference!
2. You can keep putting money in until you turn 50
Even if you’ve used your lifetime ISA towards your first home, you can keep it open and carry on paying into it until you turn 50. You'll still get the lifetime ISA bonus.
You'll then be able to withdraw money, penalty-free, when you turn 60.
3. Watch out for the lifetime ISA government withdrawal charge!
(Don't worry, if you check the rules before you open a lifetime ISA so you know you're committing to, it's easy to avoid paying the withdrawal charge.)
If you withdraw money from your lifetime ISA in a way that breaks the rules, the government will charge you a withdrawal fee which is 25% of the money you're taking out.
As it's 25% of everything you withdraw, you not only lose the bonus but you could also lose some of your own money as well. It's well worth avoiding paying if you can.
So, here's a quick overview of the lifetime ISA withdrawal rules:
- Your lifetime ISA should be open, with money in it, for at least a year before you make a withdrawal.
- Your lifetime ISA should be used towards buying your first home (unless you've turned 60, when you can withdraw money for anything you like).
- You must plan to live in the home you buy.
- You must use a mortgage to buy the property (this can’t be a buy to let mortgage or a private mortgage).
- The home you buy must cost £450,000 or less.
Take your first step to home ownership with a OneFamily Lifetime ISA
4. Lifetime ISAs aren't just first-time buyers
Lifetime ISAs are best known for being a tool to buy your first home sooner. But they can also be used to build an extra pot of money for when you turn 60. Dream holiday anyone?
A word of warning though. Having a lifetime ISA instead of a pension might not be a good idea if you're employed or a higher rate taxpayer. This is because you may miss out on employer contributions to your pension, or tax relief at 40%, which could both give you more than the 25% government bonus.
Of course, you can have both a LISA and a pension – if you have any spare income or have maxed out your pension allowance, a lifetime ISA is one way to top-up your retirement savings.
You should seek advice from a professional before deciding how to save for your retirement.
5. There are two types of lifetime ISA
You can choose to open a stocks and shares lifetime ISA, where your money is invested, or a cash lifetime ISA which earns an interest rate. Compare the two in our cash vs stocks and shares lifetime ISA guide.
A stocks and shares lifetime ISA has the potential to grow your money more over the long-term compared to a cash lifetime ISA. But both come with some risk.
When you choose a stocks and shares lifetime ISA, your money is invested in stocks and other lower-risk assets so the value is likely to go up and down over time. You could get back less than you pay in if you withdraw at a time when the value is lower.
But this type of lifetime ISA has greater potential to keep up with rising house prices.
Cash lifetime ISAs, on the other hand, earn a more reliable interest rate so you don't have the risk of the value dropping. However, there is a risk that the interest rate will be lower than how much house prices go up by while you're saving.
So, stocks and shares lifetime ISAs might be better only if you plan to keep your money invested for at least five years, as fluctuations tend to even out over time.
If you expect to buy your home within five years, a cash lifetime ISA might be a better option for you.
At OneFamily, we only offer a stocks and shares lifetime ISA. This is because we believe this gives your money the best chance of out-growing inflation over the long-term.
Open a OneFamily Lifetime ISA
Our Lifetime ISA comes with a 25% government bonus, worth up to £1,000 a year!
Our Lifetime ISA invests in stocks and shares, so the value is likely to go up and down over time. This is normal for this type on investment, but it means there is a risk you could get back less than you put in if you withdraw at a time when the value is lower.
