Best Lifetime Isa LISA providers – how to get £32,000 towards buying a house or retirement
If you pay into a Lifetime ISA then you could get a £1,000 a year bonus from the government - but you've got to be quick
THE Lifetime Isa (Lisa) is a savings product which is designed to help people save for a first home or retirement with a bonus of up to £32,000 from the government.
Here's everything you need to know about Lisas, including how to get one, how to find the best deal and how to get the government top up.
What is a Lifetime ISA?
The Lisa is a tax-free savings product, which the government launched to help people get on the property ladder or save for retirement.
Like with other forms of Individual Savings Accounts (Isas) the Lisa comes in two forms, cash Lisas and stocks and shares ISAs.
Brits between the age of 18 and 39 can open a Lisa, but once you have one you can keep saving until you are 50 years old.
You can save up to £4,000 a year and the government will then add a 25 per cent bonus on top, effectively giving you free money.
For example, if you save £1,000 a year, the government will add in £250, and if you save the full £4,000 you'll get an extra £1,000 on top.
If you opened one at age 18 and saved the maximum amount for 32 years you'd get £32,000 of free government cash.
The £4,000 savings limit counts towards your overall Isa limit, which is £20,000 for 2019/2020.
The money in your Lisa can be used either towards a first home worth under £450,000 or towards retirement once you're over the age of 60.
If you're using it for a property, you'll need to have had the account for at least 12 months before you can take the cash out.
Because it's form of Isa, when you take the money out it's all totally tax free.
What happens if I use the money for something else?
If you choose to take out the money for something that is not a pension or buying a first home, you will be charged a 25 per cent penalty.
If you want to buy a first home that is worth more than £450,000 you'll also have to pay the penalty charge.
And you can't use the top up for buy to let properties either.
The 25 per cent is applied to your total savings, so you'll actually lose more than the value of the government bonus.
For example, if you have saved £1,000 the government top up means that you'll have £1,250 to take out.
The 25 per cent penalty charge is £312.50, so you’d only get £937.50 meaning you’d lose some of your savings and get back less than you invested.
The only exception to these rules is if you are diagnosed with a terminal illness.
Lifetime ISA catches
- IF you want to buy a home worth more than £450,000 with your LISA, 25 per cent of what you withdraw is taken off
- You can only use a LISA for a property if you have NEVER owned a property before (including a share of a property that was inherited, or a home overseas)
- If you're a first-time buyer purchasing with someone else (a partner or friend, for example), they cannot have owned a property before
- If you're using the money for a new home it is paid directly to a solicitor, not to you
- If you reach the age of 40 on or before 6 April 2018 you won't be eligible for a LISA
- If you're using the money for retirement you can only access it on your 60th birthday. By contrast, you can access money in a private pension from the age of 55.
What if I already have a Help to Buy Isa?
The government has now closed its Help to Buy Isa scheme, but lots of savers have one that they opened before the deadline.
Like the Lisa, the Help to Buy Isa also offered a 25 per cent government bonus for saving.
You're allowed to open a Lifetime Isa if you already have a Help to Buy Isa, but you can't use both funds to buy your new home and keep the bonuses.
But you can use your Help to Buy Isa for property and your Lifetime Isa for retirement and keep both bonuses.
You can also transfer your Help to Buy Isa into your Lisa if you want.
Can I use a Lifetime Isa for pensions and property?
The rules around this are not clear on the government website, so you'd be forgiven for thinking you could only use the bonus for pensions or property.
But in fact you can use the some of your savings to buy a home and keep saving for retirement afterwards.
Even better, as long as you keep the same Lisa account open, you'll even keep getting the government top up.
A Treasury spokesperson told the Sun: "Provided you don’t close your account your LISA remains open after a qualifying withdrawal has been made for the purchase of a first home
"You can continue to save up to £4,000 each year into your account until age 50 and receive the 25 per cent government bonus (paid monthly)."
You don't have to empty your account when paying for a first home either, you can keep some of the funds in there to put towards retirement if you world prefer.
How to decide between cash and stocks and shares?
Deciding whether to open a Stocks and Shares Lisa or a cash Lisa will depend on a number of factors.
The first is what you intend to use the money for and how long you're likely to be saving.
If you're planning on buying a property in the next five years, you're probably better off with a cash Lisa.
But if you're saving for a house a long way into the future, or saving towards retirement you will probably be better off with a stocks and shares Lssa.
That's because stocks and shares Lisa's allow your money to grow over time and are more likely to beat inflation.
The best cash Isa on the market at the moment pays just 1.40 per cent, meaning that your savings won't go up in line with inflation.
How to choose a cash Lisa?
If you opt for a cash Lisa, you'll want to shop around to get the best interest rate you can find.
You aren't tied to one provider, so once you've opened a Lisa you should keep an eye out for other Lisa deals and move your savings if you spot a better rate.
Fortunately Moneyfacts.co.uk aggregates data to show which is the best one available at any given time.
Here's the top rates available at the moment.
- Moneybox -
Rate: 1.40 per cent
Balance after twelve months, based on the maximum deposit of £4,000 and getting the government bonus: £5,070
- Nottingham Building Society -
Rate: 1.25 per cent
Balance after twelve months, based on the maximum deposit of £4,000 and getting the government bonus: £5062.50
- Paragon Bank -
Rate: 1.15 per cent
Balance after twelve months, based on the maximum deposit of £4,000 and getting the government bonus: £5,057.50
- Newcastle Building Society -
Rate: 1.10 per cent
Balance after twelve months, based on the maximum deposit of £4,000 and getting the government bonus: £5,055
- Skipton Building Society -
Rate: 1 per cent
Balance after twelve months, based on the maximum deposit of £4,000 and getting the government bonus: £5,050
How to choose a stocks and shares Lisa?
Choosing a Stocks and Shares Lisa is less straightforward as there's no simple interest rate to compare.
How your investments perform will depend on how much risk appetite you have, how high your provider's charges are and how long you are invested for.
Plenty of providers offer Lifetime Isas including Nutmeg, Hargreaves Lansdown and AJ Bell, meaning there's lots of choice.
Andrew Hagger, founder of MoneyComms explains how to get the best deal.
He says: "Don't be afraid to ask some questions before committing to a specific stocks and shares based Lisa. [Ask] "What has performance been like to date and what level of risk would you have to take to get that?"
"You'll find that fund platforms may categorise their Lifetime Isas into different risk categories - for example Cautious, Positive or Adventurous - be aware that adventurous (more risky) funds may generate better returns over short periods but they can also be the most volatile and see significant downturns too - make sure you are comfortable with the possible roller coaster ride of fund performance/value.
"Ask for a list of all charges and compare against other LISA Funds - including annual management fees, transfer in existing ISA fees and fees for buying and selling shares within your LISA."
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