Lifetime ISA accounts are a hybrid savings product, helping investors save money for their first home, or helping to accumulate additional savings for their retirement. The government will pay a 25 % bonus on all subscriptions made to a Lifetime ISA account, but that bonus will have to be paid back if those funds are withdrawn for any other reason than a qualifying “Life event”.
Investors can continue to make subscriptions to a LISA account up to their 50th birthday.
Who can open a LISA?
Lifetime ISA accounts can be opened by UK residents between the ages of 18 and 39. A LISA can be opened up to the day before the investor’s 40th birthday.
Yearly allowance
£ 4,000.00 in total can be subscribed to a cash LISA, or a stocks and shares LISA during any one tax year. Any subscriptions made to a LISA will form part of the overall ISA allowance of £ 20,000.00. Hence if £4,000.00 is subscribed to a Lifetime ISA, then only £ 16,000.00 remains to be subscribed to another type of ISA product, within the same tax year.
There is no minimum subscription stipulated in HMRC ISA regulations, but most ISA providers will determine their own minimum, usually around £ 200.00.
The tax year runs April 6th to April 5th of the following year. Once the tax year has ended, unused ISA allowance is lost.
Application form
Before subscriptions can be made to a Lifetime ISA account, they will need to sign a LISA application form. This application form, unlike an ISA application form is not rolling, which means a new application is not required if there is a break in subscriptions during one tax year.
Transferring a LISA account to another ISA provider
Cash and stocks and shares LISAs can be transferred to a new ISA provider at any point during the tax year.
Life events
If funds are withdrawn from a Lifetime ISA account for a qualifying life event, as defined by HMRC, then no charge is incurred, i.e. the investor keeps the 25% bonus paid by HMRC.
Life events:
Buying your first home – As long as you have never previously owned a property, then you can withdraw funds from your LISA with incurring a charge. This is the case even if you are jointly buying a home with someone whom has previously owned a property. Two people buying a property together, could both withdraw funds from their respective LISA accounts to help buy the same property.
To qualify, the house must valued at less than £ 450,000.00, be bought with a mortgage and the funds are paid by the LISA provide directly to the conveyancer.
Turning 60 – The investor can withdraw funds from their LISA from the age of 60 without penalty.
Terminal illness – If the investor has less than 12 months, they can withdraw from their LISA account without penalty.
BONUS
As stated, HMRC will pay a 25% bonus on all subscriptions made to a LISA account. The LISA provider will claim this on behalf of the investor and credit the bonus directly to their LISA account. Those funds can then be invested if held in a stocks and shares LISA. Generally, the bonus should be credited to the investor’s LISA within 4 to 6 weeks.