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The Lifetime ISA and First Time Buyers
The Government's recently revealed Lifetime ISA (LISA) will be available for savers from 6th April 2017.The LISA allows the ISA holder to save up to £4,000 each year and receive a government bonus of 25%. All or some of the funds can be used to buy a first home or, alternatively, some or all of the funds can be kept until retirement age when any bonus received can be used to uplift retirement savings.
Unlike the Help to Buy ISA, the LISA has an upper and lower age limit for eligibility to open an account. An individual may only open an account between the ages of 18 and 40 and any savings lodged before the age of 50 will receive an added 25% bonus from the Government. On reaching that age no further contributions can be made. On reaching the age of 60 savings and associated bonus can be withdrawn tax free. Any attempt to withdraw the funds for a purpose other than to purchase a first property or in the event of severe ill health will attract an exit penalty resulting in the loss of the Government bonus, any interest accrued and a 5% charge will also be imposed.
Both ISAs pay a 25% bonus to first time buyers however both have their own individual features. The LISA pays a bonus at the end of each year and annual compound interest may be earned on this, however the Help to Buy ISA bonus will only be released on completion of the purchase of a property. Furthermore the maximum bonus for a LISA is £32,000.00 whereas for the Help to Buy ISA it is £3,000.00 (subject to the maximum savings limits across all ISA accounts for that tax year).There are other advantages to the LISA. Unlike the Help to Buy ISA the LISA allows for more flexible contributions. There is no maximum monthly contribution, subject to a maximum annual saving of £4,000.00, allowing savings of up to £1,600.00 more than the Help to Buy ISA which only allows monthly savings of up to £200.00 and therefore an annual maximum of £2,400.00 ( Plus an opening lodgement of £1,200.00). The savings and the bonus from the LISA can contribute to a deposit on a first home worth up to £450,000.00 nationwide compared to the Help to Buy ISA which has a cap of £250,000.00 nationwide with the exception of London (£450,000.00).
The most noteworthy feature of the LISA is that it will be possible to put any bonus towards a contractual deposit. The Help to Buy ISA was heavily criticised in August 2016 by the media as it was reported that the bonus could not be used towards a contractual deposit.
Those savers who already have a Help to Buy ISA may transfer those savings into a LISA in 2017 or, alternatively may continue saving into both, although it will only be possible to use the bonus from one to buy a first property. Only savings accrued in the Help to Buy ISA before 6th April 2017 can be transferred without penalty to the LISA (This will otherwise use up your tax free allowance). These savings must be transferred to the LISA before 5th April 2018. Anyone considering purchasing a first property before 5th April 2018 should be aware that the Help to Buy ISA is the only route available which attracts the Government bonus. The Lifetime ISA must be open for 12 months before a withdrawal for the purposes of a property purchase can be permitted.
Brendan is a solicitor in the firm's private client department. For more information on Lifetime ISA's contact Brendan at brendan.garland@mmwlegal.com.
Brendan Garland
Help to Buy ISAs - What You Need to Know
In 2015 the then Chancellor George Osborne introduced the Help to Buy ISA Scheme which was aimed at giving first time buyers a 25% boost on their savings towards the purchase of a first home. From December 2015 first time buyers were offered the opportunity to open a Help to Buy ISA account with a participating bank....
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