Lifetime ISAs offer a 25 percent government bonus on savings up to a maximum bonus of £1,000 per tax year. The total amount that eligible savers can pay into this particular account is £4,000 per tax year – and this is included in the £20,000 annual ISA allowance.
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A person must be 18 or over but under the age of 40 in order to open a Lifetime ISA.
Once they’ve opened the account, savers can pay in up to £4,000 into the account, until they reach the age of 50.
At this time of life, the account holder is no longer able to pay money into their Lifetime ISA, or earn the 25 percent bonus.
However, the account will still remain open, and the savings can still earn interest or, for stocks and shares Lifetime ISAs, investment returns.
There are rules surrounding withdrawing money from a Lifetime ISA.
A person can do this without paying a penalty charge if they’re:
- Buying a first home
- Aged 60 or older
- Terminally ill, with less than 12 months to live.
Otherwise, a withdrawal charge will need to be paid.
Usually, this charge is 25 percent, however, in response to the coronavirus crisis, the rate has been cut – providing access to the money a saver paid in.
As such, the charge is currently 20 percent, however it will revert to 25 percent on April 6, 2021.
The new withdrawal charge was announced in April this year, but took effect from March 6, 2020.
This means that anyone who has been charged at the old rate of 25 percent will be paid the difference into their Lifetime ISA.
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While first-time buyers are eligible for Stamp Duty Land Tax relief, it may be that some wish to take advantage of the Stamp Duty holiday announced by Rishi Sunak last week.
During his summer statement in the House of Commons, the Chancellor said he was raising the SDLT threshold from £125,000 to £500,000 – meaning SDLT only applies above this threshold until March 31.
So, what are the rules surrounding using Lifetime ISA savings to buy a first home?
A person may only use these savings to purchase their first home if all of the following conditions apply.
- The property costs £450,000 or less
- They buy the property at least 12 months after opening the Lifetime ISA
- The buyer uses a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them
- They’re buying with a mortgage.
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