21 Mar Budget 2016 – Lifetime ISA
In the Budget, the Chancellor announced the introduction of a new flexible savings plan to help the under 40’s save for the future. Starting in April 2017, the government will launch a new Lifetime ISA that will help those aged between 18 and 40 to save for a new home or for their retirement.
The new scheme will see the government provide a bonus of 25% on yearly savings of up to £4,000 until the saver’s 50th birthday. Any savings put in before the Lifetime ISA holder’s 50th Birthday will benefit from the 25% bonus. This could mean an extra £1,000 for every £4,000 saved annually from the age of 18 to 50. In total this could see savers who invest the maximum contributions of £128,000 receive a maximum government bonus of £32,000.
The savings and bonus can be used to purchase a first home worth up to £450,000 anywhere in the UK or to save towards retirement. A saver will be able to withdraw the savings tax-free after their 60th birthday. The funds can remain invested after age 60 and any interest and investment growth will be tax-free. The money can be withdrawn earlier (for something other than the purchase of a first home) but the government bonus will be lost and a 5% exit charge will be payable.
Any contributions to a Lifetime ISA will be part of the overall ISA annual contribution limit. This limit will increase to £20,000 from April 2017. The government bonus will be paid annually at the end of the tax year.
Source: HM Government | 17-03-2016
You should always take specific advice in relation to your own circumstances as this article can only provide a guide.