Lifetime ISA - rule confirmations and nuances to watch out for
The Treasury has issued a lifetime ISA technical update, which provides a number of rule qualifications and confirmations.
- The bonus is based on the contribution, not on the value. So a £4,000 contribution to a stocks and shares LISA will receive a £1,000 bonus, even if the value has fallen or risen in the interim.
- Bonuses will be paid annually for the first year and then from April 2018 will be monthly
- 25% penalty on the value of an amount withdrawn, if other than after age 60 or for the first property purchase under 40 or in the event of terminal illness
- No non-eligible contributions will be permitted
- Unlike Help 2 Buy, the bonus will be available for exchange of contracts, not completion
- Only cash or shares from maturing SAYE schemes will be permitted contributions
- The door has been left open for borrowing from LISA
Nuance of property purchaseThe LISA cannot be used for house purchase for the first 12 months so the first time eligible, penalty free savings will available will be 6th April 2018. However the bonus for 2017/18 is unlikely to be paid for a few months after April 2018, so those wanting to use their LISA value plus bonus for property purchase in April, May or possibly June 2018 may well be disappointed.
Danny Cox, Chartered Financial Planner, Hargreaves Lansdown;
“Making the LISA values plus bonus available at exchange of contracts will help first time buyers’ cash flow and it is a better system than the Help 2 Buy ISA as the cash will be ready when needed. First time buyers need to take into account the timetable for the first annual bonus in their planning otherwise they risk a shortfall at exactly the wrong time.
We expect considerable interest from the 500,000 or so Help 2 Buy ISA holders, looking to transfer their values across to LISA in 2017/18. This will give them wider choice, the benefit of stocks and shares options, higher subscription levels and bonuses paid sooner.
The door has been left open to add borrowing as an option. This would complicate the LISA product and potentially risk savers bypassing the penalty to access their savings plus bonus.
There remains opportunities for a simplification of the ISA range which would help simplify savings decisions and should lead to higher savings rates.”
NOTES TO EDITORS
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