Budget 2016 - The Lifetime ISA
Osborne’s “rabbit out of the hat” moment was his introduction of LISA – the Lifetime ISA. Save up to £4,000 each year and receive a government bonus of 25%.
LISA will be available from April 2017 to savers aged 18 to 39. The government bonus will be added at the end of each year based on contributions made during that year. Bonuses will be payable on all savings up to the saver’s 50th birthday. So, if you are 40 or over you won’t be able to open a new account but you will be able to add to existing accounts and receive bonuses up until the age of 50.
LISA savings and bonuses may be used towards a deposit on a first home worth up to £450,000. Alternatively savings may be accessed completely tax-free from age 60 onwards.
If savings are accessed before the age of 60 and are not used towards a deposit on a first home the bonuses (and any growth on the bonuses) are forfeited and there will be a 5% charge.
LISAs will otherwise be very similar to the ordinary ISA. They will be offered by banks, building societies and investment managers, i.e. both cash and stocks and shares version will be available. Qualifying investments will be the same as ISAs. Individuals will be able to open multiple accounts during their lifetime but will only be able to pay into one LISA in each tax year.
Contributions to LISA will sit within the new overall £20,000 ISA limit. It will be possible to contribute to LISA as well an ISA in the same tax year subject to not exceeding the overall contribution limit. Savers will be able to save in both a Help to Buy ISA as well as LISA but will only be able to use the government bonus from one of the accounts to put towards their first home.
During the 2017/18 year only, savers who already have a Help to Buy ISA will be able to transfer those funds into a Lifetime ISA and receive the government bonus on those savings. Help to Buy ISA savings made prior to 6th April 2017 will not count towards the Lifetime ISA annual contribution limit. Contributions made after that date will count towards the LISA annual contribution limit.
All LISA funds may be withdrawn tax-free on diagnosis of terminal ill-health irrespective of age. This is in line with pension legislation. The government also plans to explore whether savers should be able to access savings for other specific life events.
LISA will have the same inheritance tax treatment as the ordinary ISA. It will form part of the deceased’s estate but an increased allowance (equal to the LISA value at the date of death) will be available to a surviving spouse.
At HDA we welcome innovation and additional savings incentives but we are concerned that this new account will introduce unwanted confusion. We worry that savers will now be uncertain as to their best course of action, particularly when considering pension savings and Auto-Enrolment. The government has introduced savings products and incentives which overlap and conflict with each other. We can’t help thinking that there could have been a much simpler and more coherent solution. But George didn’t ask us ….
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