Unlike it’s more standard counterparts, a Lifetime ISAs allowance only allows you to save a maximum of £4000. This is due to the fact this type of ISA is designed for those saving for either retirement or a first home, with the government backing bonus stated to be 25% annually. Basically, this means that if you put £2,000 into a LISA then the government will back you up by adding £500 to your total at the end of the tax year.
Part of your ISA allowance
Another point to note is that this ISA is linked to all other ISA allowances which make up your annual contribution. For example, say your contribution into your Lifetime ISA is £2,000 then that leaves you with £18,000 which you can put into an innovative ISA, cash ISA etc. This also means that you can open a LISA in conjunction with any other financial ISA products.
Bonus payments are usually calculated by HMRC and they do this monthly, all based on payments you have made on the 6th of the previous month up to the 5th of the following month.
Naturally, if you get are getting ISAs from Weathify or any other provider, make sure to understand how they apply this bonus as not all providers will necessarily re-invest the money into your account, therefore, reducing your chances of getting more interest in the next month. It is advisable to check before signing on the dotted line how your bonus is handled by your specific provider. This is, especially, prudent to know when if the provider prefers putting the LISA bonus into a cash account that earns no interest, which can stunt your investment growth.
The Lifetime ISA requirement
Unlike most ISAs, a Lifetime ISA has a few stringent requirements, namely:
- You must be under 40 years but over 18
- A UK resident
- Crown servant, including spouses and civil partners
Although you can still open a Lifetime ISA above the age of 40, you will not be able to earn the 25% bonus once you turn 50.
Penalties and withdrawals
As this type of ISA is designed for either making a purchase of your first home or retirement, a penalty is imposed should you wish to make withdrawals for any other reason bar these two. The penalty fee is currently 25% of the amount in the account. So if you have £1,000 and your annual bonus of £250 was paid, then you would be liable to pay 25% of £1,250, which totals £312.50. This means you pay back the £250 government bonus plus an extra £62.50. It is best to be certain that this is the type of financial investment you wish to make as it is not designed to be a short term savings account.
To withdraw for making a home purchase, you are required to have had the account for at least 12 months. Unless you are facing ill health and have no more than 12 months to live, only then is the penalty is waived. Also, you are free to make a withdrawal once you reach 60 and over.
Only you can decide if this a LISA is right for you.