If you’re saving for a deposit for your first home, it can be confusing trying to work out where best to keep your money. There is a tax-free ISA available where the government adds 25% to your savings, but like with most things, there are pros and cons
To help you understand how it works, we’ve summarised what you need to know below.
What is a Lifetime ISA?
- Lifetime ISAs (LISAs) are for UK residents aged between 18 and 39 years buying their first home. You must use a conveyancer or solicitor to act for you in the purchase, and you must be buying with a residential mortgage.
- You can save a maximum of £4,000 every tax year in your Lifetime ISA.
- There is a government bonus of 25% on top of whatever you save. So, if you save £4,000 each year, you could earn an extra £1,000 every year until you are 50 years old.
- The bonus is paid into your account monthly, and is added to your savings amount so will earn interest too.
- Important: A Lifetime ISA must be open for one year before you can use it to purchase your first home. Alternatively, you can keep your cash in a Lifetime ISA until you retire.
- You can buy a property anywhere in the UK up to £450,000.
- It can be used at the same time as using other schemes such as Right to Buy, Shared Ownership, Self Builds and Help to Buy loans.
- If you withdraw money that is not to purchase your first home or taken before you are 60 years old, the government charges a withdrawal fee of 25% on the total amount withdrawn. Note that this charge has been reduced to 20% until April 2021.
Is there anything else I need to know?
- If you’re buying as a couple, you can each have your own Lifetime ISA (unless one of you has owned a property previously), which means you can double the bonus.
- If you want to buy a property for more than £450,000, you will need to withdraw your savings and pay the 25% penalty.
- Your savings will be available in time for exchange on your property so it can be used as part of your deposit.
- If you use your ISA to buy your first home, you can choose to keep your account to save for your retirement.
- The Lifetime ISA can be used to just save for retirement. You can access your savings once you turn 60 to help fund your retirement.
- If you choose a Stocks & Shares Lifetime ISA, there may be risks associated with investing as the value of investments may go up or down. Alternatively, you can opt for a Cash Lifetime ISA instead.
- You’re not locked into your Lifetime ISA provider and are free to transfer your funds to another provider at any time to try and get a better interest rate.
Can I have a Lifetime ISA AND a Help to Buy ISA?
If you already have a Help to Buy ISA, you can also have a Lifetime ISA, but you are only able to use one of them to buy your first home. The government bonus will not be granted on both.