Aaron Abraham an independent financial adviser working in Lonsdale Services Harpenden office reviews - Should millennials open a Lifetime ISA?
The Lifetime Individual Savings Account (LISA) was introduced in 2017 by the government to help anyone aged 18-39 save towards their first home or save toward their retirement. You can save up to £4,000 p.a. tax free each year into a LISA up to your 50th birthday. The government will pay a 25% bonus on the contributions you make up to a maximum of £1,000 p.a. Remember any money you save into a LISA will be treated as part of your normal ISA allowance.
The LISA can only be accessed without penalty before the age of 60 if the withdrawal relates to the purchase of a first home. Withdrawals or account closures before the age of 60 will normally incur a government charge of 25% of the total amount withdrawn, so you could get back less than you paid in. A withdrawal charge also becomes due when funds withdrawn charge-free for a first time residential purchase on or after 6 April 2018 are not returned to the Lifetime ISA after the failure of that purchase
The LISA intended to be used for first home purchase. The first home must cost £450,000 or less and you must intend to live in the property – you cannot use the LISA in connection with the purchase of a buy-to-let investment property. A first time buyer is classed as someone who has never owned a residential property anywhere in the world before. Should the LISA not be used for a first home purchase then it can be accessed without loss of bonus from age 60 onwards. If the LISA isn’t used before age 60 in connection with a first home purchase the funds can be accessed without penalty from age 60.
Aaron Abraham, financial adviser, Harpenden, Hertfordshire said:
'The LISA for first time buyers is a great way that young people can save for a deposit toward a house purchase. If you are buying a home with someone else both of you will be eligible to open a LISA. However, it is important to understand the rules relating to home ownership. If you have owned a share of a property even if it is through inheritance and you have never lived there you are not considered a first time buyer for the purposes of this product. Also if you had a trust or owned a company that owned residential property that you could live in you would be disqualified.'
Aaron Abraham, financial adviser, Harpenden, Hertfordshire continued:
‘If you want to open a LISA with the intention of using the funds in retirement we recommend you speak to a financial adviser who can review your personal circumstances and decide if this product is right for you. You should get financial advice as it might be better to open a pension or save more into an existing pension arrangement. If the LISA is accessed before age 60 penalties and loss of bonus will apply, unless it is being used in connection with a first home purchase. Please note that if you saved into a LISA instead of enrolling into a work place pension then you may lose the considerable benefit of employer pension contributions or entitlement to any means tested benefits. If you are considering this then we would recommend you should seek financial advice first before taking any action.’