What is a Lifetime ISA?
A Lifetime ISA (Individual Savings Account) allows you to save up to £4,000 per tax year, within the overall annual ISA allowance of £20,000 for the 2024/2025 tax year. You can contribute to a Lifetime ISA alongside other types of ISAs, such as cash ISAs, stocks and shares ISAs, and innovative finance ISAs. For those seeking long-term financial goals, consulting a financial adviser near me can help ensure you are maximising your savings opportunities.
Who Can Open a Lifetime ISA?
A Lifetime ISA can be opened if you are aged between 18 and 39. You are eligible to save up to £4,000 each year until your 50th birthday, with the government providing a 25% bonus (capped at £1,000 per year) on all contributions.
Funds can be withdrawn tax-free for two key purposes:
- Buying your first home – for properties worth up to £450,000.
- Retirement – accessible tax-free from the age of 60.
If you’re unsure whether a Lifetime ISA suits your needs, consulting an independent adviser can provide clarity, especially if you are planning for your pension or other long-term financial goals.
What is the Government Bonus?
The government bonus is a 25% top-up on your annual contributions. For every £4,000 saved, the government will add £1,000. This bonus is paid into your Lifetime ISA monthly, helping your savings grow faster. Working with a certified financial adviser near me can help ensure you make the most of this opportunity and understand any applicable Lifetime ISA fees.
Withdrawing from a Lifetime ISA
To Buy a First Home
The savings, including the government bonus, can be used as part of a deposit on your first home, provided the property is valued at £450,000 or less. Lifetime ISAs are individual accounts, meaning two first-time buyers purchasing together can each use their Lifetime ISAs and claim their bonuses. An independent financial adviser can help ensure you are fully prepared for this significant step.
At Retirement
From the age of 60, you can withdraw your savings, including the government bonus and any interest earned, completely tax-free. For those seeking the best financial service to optimise retirement planning, working with a financial advisor can ensure your Lifetime ISA aligns with your broader pension strategy.
Other Withdrawals
If you withdraw funds for purposes other than a first home or retirement, a 25% charge will apply to the amount withdrawn. This charge is designed to return the government bonus, plus an additional fee.
For example: If you save £800 and receive a £200 bonus (totalling £1000), a 25% withdrawal charge would apply to the full £1000, leaving you with £750. Be mindful that even early withdrawals before receiving your bonus are subject to this charge.
Exceptions to this rule include terminal illness or death, where the withdrawal penalty does not apply. An independent adviser near me can explain these rules further and ensure you are making informed decisions.
Will I Earn Tax-Free Interest on My Lifetime ISA?
Yes, all savings within a Lifetime ISA earn tax-free interest. A financial adviser can help you compare providers to find the top rates and ensure you receive the best possible returns.
What if I Decide Not to Buy a House?
If you choose not to buy a property, your Lifetime ISA can continue to grow and be used for retirement purposes. You may also withdraw your funds early, subject to the 25% withdrawal charge. If you’re uncertain, seeking advice from a certified financial adviser can provide clarity on your options.
What Happens if My House Purchase Falls Through?
If your property purchase falls through after closing your Lifetime ISA, the account can be re-opened, and you can replace the funds without penalty. This ensures you can continue saving toward your future home or retirement. For expert guidance, an independent financial adviser can help you navigate these scenarios effectively.
Finding the Best Financial Service for Your Lifetime ISA
Whether you’re saving for your first home or planning for retirement, working with a financial adviser near me can make all the difference. Independent advisers offer personalised advice tailored to your circumstances, helping you understand Lifetime ISA fees, optimise your pension savings, and achieve financial protection. If you want to find financial adviser expertise you can trust, seeking top-rated certified advisers ensures you receive a high-quality service to support your financial goals.
Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom. Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand. All rates are correct as of 16 October 2024.
