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Lifetime ISA Launch

With just a couple of days until the launch of the Lifetime ISA, we thought it was worthwhile highlighting some of the benefits and drawbacks of the government’s latest offering.

In a nutshell, anyone between 18 and 40 can open a Lifetime ISA (or LISA), and save up to £4,000 a year (until your 50th birthday) - and the government will add a top up bonus of 25% at the end of each tax year - so a bonus of up to £1,000 a year.

There are 2 uses for the LISA:

First Time Buyers - to help buy your first home:

Savings can be put towards your first home that is worth up to £450,000. If there are 2 of you buying, you can use a LISA each (as long as you are both first time buyers).

Save for retirement:

Once you turn 60, you can withdraw all your savings tax free.

Things to consider:

  • You can withdraw money at any time - but there will be a penalty if not used in the ways detailed above.
  • If you are a basic rate taxpayer, the LISA offers the same tax relief as a pension and can be withdrawn tax free once you reach 60.
  • Higher rate taxpayers - in most cases, Pensions offer a more attractive tax relief - BUT - this varies dependant on your marginal rate of tax paid while working and when you take the benefits / savings.
  • The savings in a LISA will affect your eligibility for means tested state benefits - where pension savings won’t.

 

Workplace Pensions vs. Lifetime ISAs

In almost all cases, a Workplace pension will still be the most tax efficient way to save for retirement simply because of your employers contribution - which a LISA would not benefit from.

If you would like further information, or just to have a chat about the different options, feel free to give us a shout on 01302 244 977.

Publish date: 31st March 2017

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