Lifetime ISA, also known as LISA, is one category of ISA designed to help people who are planning to save either for their first home or retirement plan.
If you take out a LISA then the government will provide you a bonus worth 25% of what you pay in, up to a set limit for every tax year.
Here, in this article, we are going to wrap up some benefits of opening a Lifetime ISA in the UK.
So, let’s get dive into the deep!
How a Lifetime ISA works:
- You can put a maximum of £4,000 into a Lifetime ISA account each tax year.
- You will be paid worth 25% by the government as a bonus. The bonus will be paid monthly.
- You can earn a maximum bonus in a tax year is £1,000.
- The amount that you will pay will be linked to your annual Isa allowance (£20,000 for 2023-24). In simple words, if you pay £1,000 for your lifetime ISA product still you can pay £19,000 for other ISA products.
- If any bonus you will earn will not be counted towards your ISA allowance.
- You can open a Lifetime ISA, a stock and shares ISA, a cash ISA, and an Innovative Finance ISA each tax year.
Who can have a Lifetime ISA?
- Anyone over the age of 18 can have a Lifetime ISA but he needs to be under the age of 40.
- Only one Lifetime ISA can be held during one tax year; so you can have more than one LISA throughout your lifetime. But, you can only get the government bonus paid into one LISA product.
- A Lifetime ISA is a personal product so a husband, a wife, or partners can get their own personal LISA. That refers to a couple can have more than one LISA.
- Opening a Lifetime ISA is so simple and paying for the LISA can be done by regular contributions from a bank account.
- Parents and grandparents can pay for a Lifetime ISA if it was opened by the son or grandchild.
The benefits of opening a Lifetime ISA:
You can use a Lifetime ISA for your first home to buy and to plan for your future. You can pay up upto £4,000 each tax year until you become 50. You also need to make your first payment into a Lifetime ISA before 40.
There are several benefits that you can avail yourself of by opening a Lifetime ISA product. Here, we are going to wrap up the advantages of opening a Lifetime ISA:
1. Possibly the best LISA you will meet:
The government will pay you a 25% bonus on what you have saved, up to a maximum of £1,000 per tax year.
£4,000 will be counted as your annual Lifetime ISA limit. The limit is £20,000 for the 2023-24 tax year.
You can hold shares and stocks, cash, in your Lifetime ISA, or also you can have a combination of those products.
When you become 50, you will be eligible to pay into Lifetime ISA or earn the 25% bonus. Your account will remain open and your savings will still earn interest or investment returns.
2. Withdrawing money from your Lifetime ISA
You can withdraw money from your Lifetime ISA if you are:
- Purchasing your first home
- You have aged 60 or more
- You are ill, with less than 12 months on your hand to live
You will pay a withdrawal charge of 25% if you need to withdraw cash or assets for any other reason. It is also known as unauthorized withdrawal. This recovers the government bonus that you have received on your actual savings.
3. Buying your first home:
You can use your savings from the Lifetime ISA to help you to buy your first home if all the following measures are applicable:
- The property costs £450,000 or less.
- You purchase the property at least after 12 months you have opened your Lifetime ISA. That means you need to make your first payment before 12 months of buying your first home.
- You can use a solicitor or conveyancer for playing the role for your purpose. The ISA provider will directly pay the fund to them.
- You are buying your first home with a mortgage.
4. Saving for later life:
You can take out your savings from the Lifetime ISA when you will be of 60 or over. You need to pay a 25% charge if you withdraw your savings or you transfer the savings of the LISA to another ISA product before 60.
If you die then your lifetime ISA will end on the date of your death. There will be no charge to withdraw the funds or assets from your Lifetime ISA account.
5. LISA is a good option for your Retirement plan:
A Lifetime ISA investment is a great route to maximize tax-efficient funds for retirement. Along with an ordinary ISA or pensions, Lifetime ISA will grow income and capital gains tax-free. But, in contrast to pension funds, the Lifetime ISA can be drawn income tax-free later down the line.
FAQ:
What are the advantages of opening a Lifetime ISA?
Ans: Lifetime ISA is the type of ISA that is designed to help people who save either to purchase their first home or want to save for later life. In a Lifetime ISA, the government will pay you a bonus of 25% on your saving up to a set limit, every tax year.
How many times can you use Lifetime ISA?
Ans: You can open one LISA in each tax year; that means you can open more than one Lifetime ISA during your entire life. However, you can only open one LISA per tax year and pay one LISA in each tax year.
Conclusion:
Lifetime ISA is a breed of ISA, very effective for people who are to be first-time property buyers or intend to save for later life. LISA acts as an extra means of building up tax-efficient savings for retirement.
LISA can sit alongside any other ISA wrappers that you might hold. For some, a Lifetime ISA can provide a unique opportunity to benefit from the free money generated, and investment returns on the savings, and interest.
While for others, it might not provide them with enough funds to meet their financial goals. You can consult with any financial advisor before you decide to move funds into a Lifetime ISA.
