If you are saving for a deposit to buy your first home, then consider whether opening a Lifetime ISA before the 5th April 2023 deadline may be appropriate for you.
A Lifetime ISA (Individual Savings Account) is considered my many to be one of the best ways to save for a mortgage deposit because unlike any other type of account, the Government pays 25% match bonus on what you save, up to a maximum of £1,000 each tax year.
Just like other types of ISA account, you can open a new account or top up your existing LISA account every year. You can save or invest up to a maximum of £4,000 a year into a LISA and as well the 25% top up from the Government, you also receive tax free interest or returns on the account.
Lifetime ISAs have been designed to help first time buyers get on the housing ladder. There are eligibility rules which apply to this specific account in order to receive the Government bonus, so it’s important you understand these before applying.
Who can open a LISA?
To open a LISA, you have to be aged between 18 and 39 and be a UK resident. You will qualify for the Government match contributions on your LISA until you turn 50, at which time you can no longer pay into the account, and the bonuses will stop being paid.
Does a LISA use part of my annual ISA allowance?
The Lifetime ISA limit of £4,000 counts towards your annual ISA allowance which is £20,000 for the 2022/23 tax year. You can hold either cash or stocks and shares in your Lifetime ISA, or have a combination of both. Like other ISA accounts, you can switch investment funds or transfer your LISA to a different savings provider at anytime.
How does the government LISA bonus get paid?
Bonus money is paid monthly (if you’ve contributed that month) and takes between four and nine weeks to arrive. You only get the bonus on contributions you pay into the account, money received in interest does not qualify for a match bonus.
How do I use my LISA to buying my first home?
You can use your savings to help you buy your first home if all of the following apply:
· The property costs £450,000 or less and you are buying with a
· You buy the property at least 12 months after you make your first payment into the Lifetime ISA
If I am buying a home together with a partner, can we use two Lifetime ISA accounts towards the deposit?
If the person you’re buying with also has a LISA, then both accounts can be used. The first time buyer rules does still apply to both applicants. This means that if one person owns or have a legal interest already in property, then there is a 25% withdrawal charge on their LISA account which effectively pays back the Government bonus. This includes more complex situations, such as if a person is a beneficiary of a trust that includes property.
What happens if I don’t end up buying a home?
If you want to take out money from your LISA before the age of 60 and for any reason other than buying your first home, then you will pay a withdrawal charge of 25% (also known as making an unauthorised withdrawal). This allows the government bonus to recover the bonus payments you are no longer eligible to receive.
If you are aged 60 or over, you can withdraw the money to spend as you wish and without paying back the bonus. Some people use a LISA to save for retirement and as an alternative savings vehicle to a pension. If you become terminally ill, with less than 12 months to live, then you can also withdraw your money without penalty.
Would you like to find out more?
Our team of financial advisers at Furnley House are able to help answer questions you have on investing into a Lifetime ISA and can also help you secure a mortgage to buy your first home. To find our more, call 0116 269 6311 or email info@furnleyhouse.co.uk.
Past performance is not a reliable indicator of future performance.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
All information correct at time of writing.
