The total amount that can now be saved each year into all ISAs has increased from £15,240 to £20,000. Of this, £4,000 can be contributed to the new Lifetime ISA.
New Lifetime ISA
On 16 January 2017, legislation creating the new Lifetime ISA (LISA) gained royal assent. Like the Help to Buy ISA scheme, the new LISA, has the dual purpose of assisting first-time buyers to gain a foothold on the property ladder and helping them to save for retirement. The LISA is certainly the more attractive of the two accounts as you can invest far more and it benefits from increased versatility:
Who can take advantage?
Since 6 April 2017, anyone aged over 18 and under 40 has been able to open a LISA. An individual can contribute up to £4,000 per year while under 50 and receive an additional 25% Government bonus. This means for every £4 contributed, the Government will add a further £1, worth up to £1,000 a year. In addition, couples can both benefit from their bonuses when they buy their first house for the first time.
LISA contributions count towards an individual’s annual ISA contribution limit (£20,000 from April 2017); however any bonus received does not.
The LISA tax-free funds, including the government bonus, can be used to purchase a first home worth up to £450,000 at any time 12 months after opening the account.
How does the Government bonus work?
For the 2017/18 tax year only, the LISA bonus will be added at the end of the tax year, regardless of the frequency of the contributions. From April 2018 onwards, however, the bonus will be paid monthly.
Over their lifetime, savers can make contributions of up to £128,000, matched by the government with a maximum bonus of £32,000, with tax-free investment growth on both.
Can existing ISAs be used to fund a LISA?
Individuals can transfer any existing ISA savings to fund their Lifetime ISAs and this will not have an impact on their annual ISA contribution limits. In addition, any Help to Buy ISA funds that were saved prior to the introduction of the LISA on 6 April 2017 will not count towards their Lifetime ISA annual contribution limits.
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