Lifetime Isas: Everything you need to know

A Lifetime Isa can help younger savers put more money away for later in life, but make sure you understand the rules.

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Last updated: 15 September 2018 - 3.31pm

The Lifetime Isa is the government's flagship savings scheme, aimed at under-40s looking to save for their futures. Here's everything you need to know.

Where can I get one?

Lifetime Isa accountshave been available since April 2017 and you can choose from either a Cash or Stocks & Shares version.

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Though initially only a handful of provders offered Stocks & Shares Lifetime Isas, as the months went on a number of other products have launched on the market.

Investment firm Hargreaves Lansdown is offering a Lifetime Isa that has the same investment options as its normal Isa range. You’ll be able to invest in funds, shares, ETFs, corporate bonds and more.

Nutmeg is also setup to offer a Stocks & Shares Lifetime Isa, which will have the same setup as Nutmeg’s standard Isas but it will have a lower initial investment limit of £100 rather than £500.

The Share Centre Lifetime Isa will also mirror its Ready-Made Isa. You can choose from three portfolios and will be charged accordingly.

New Stocks & Shares Lifetime Isas are also available from AJ Bell, TD Direct, Fidelity, Momey Farm and Virgin Money. 

Cash Lifetime Isa

Skipton Building Society launched UK’s first Cash Lifetime Isa in June 2017, paying a rate of just 0.5 percent, but this has now risen to 1 percent.

But Skipton’s Cash Lifetime Isa is actually worse than the rest of its Isa range.

The Skipton Building Society easy access cash ISA pays 1.15 percent, its one-year fixed rate cash Isa pays 1.31 percent, while its three-year Isa pays 1.76 percent.

Despite this, the product has been esxtremely popular, with other 28,000 people applying in the first six weeks. 

Who can open one?

Anyone aged between 18 and 40 will be able to open a Lifetime Isa savings account when they are launched.

You will be able to open more than one Lifetime Isa during your life, but you will only be able to pay into one Lifetime Isa each year.

How much can you save?

You can save up to to £4,000 a year in a Lifetime Isa. There are no monthly limits on payments into the Lifetime Isa. In other words, you don't have to pay in every single month. Instead you can pay in your full allowance in a single month if you so wish.

Contributions to the Lifetime Isa will count towards your overall annual Isa allowance limit, which will stand at £20,000 for 2018/19.

Savers will be able to transfer money from other Isas built up in previous years into their Lifetime Isa, and you will be able to transfer your Lifetime Isa between providers to get the best deal.

What about the government bonus?

Those that pay into their Lifetime Isa will get a government bonus of 25 percent - so anyone that is able to save the maximum £4,000 by 5th April 2018 will get £1,000.

The bonus will be paid every year until you reach 50 and accrues monthly from April 2018.

That's good news as it means savers will benefit more from compound growth on the bonus over the long term.

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What can the Lifetime Isa be used for?

Some or all of the savings you build up, along with the savings bonus, can be paid towards a deposit on your first home located in the UK worth up to £450,000.

The Lifetime Isa can also be used to save for retirement. Once you turn 60 you will be able to take out all the savings tax free.

What if you have a Help to Buy: Isa?

Those with a Help to Buy: Isa will be able to transfer what they have saved into the Lifetime ISA or continue to save into both separately.

However, you will only be able to use the bonus from one scheme to buy a house. The bonus that is not used, and interest accrued on that bonus, will be returned to the government.

Speaking of bonuses, it's worth noting that savers will be allowed to withdraw their Lifetime Isa savings, including the government top up, when contracts are exchanged.

By comparison, the bonus on the Help to Buy Isa is only paid on completion of a transaction.

Will I be able to rent out the home I buy?

The rules state the government bonus can only be used by first-time buyers that buy a property to live in as their only residence and not for buy-to-let.

But the Treasury has confirmed that the rules around the Lifetime Isa will be similar to the Help to Buy: Isa.

Currently the government uses a common sense approach if your personal circumstances change and you have to rent out your home but have used the Help to Buy: Isa bonus to buy the property. In short as long as you haven't purchased the property with the intention of renting it out you should be fine.

This rule should apply to the Lifetime Isa too, but we’ll know for sure in the autumn.

In 2016 a Treasury spokesperson said: “The detailed rules for house purchase from a Lifetime Isa will be based on those for the Help to Buy: Isa. This includes that the withdrawal must be for a deposit on a property for the first time buyer to live in as their only residence, and not buy-to-let.”

Can I have a pension as well?

The Lifetime Isa won't impact how you can save for a pension.

You can still pay into a pension and get tax relief on your contributions and benefit from the Lifetime Isa bonus at the same time.

What if I want to use the money for something else?

You will be able to withdraw the money you put in at any time before you turn 60, but you will lose the government bonus and any interest this generates. There will also be a 5 percent charge.

However, where people are diagnosed with terminal ill health, they will be able to withdraw all funds, including the bonus, without penalty regardless of age.

The government says it will explore other specific life events which savers should be able to use to access the fund before the scheme goes live.

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