I have heard about the new Lifetime Isas (Lisas) that are now available and it seems like it could be worth me opening one. However, I am not sure if I am eligible – the information I have read says it is for those aged 18 to 40, but from the details given on some websites is seems that 39 may actually be the cut-off age and some say they are only for those who don’t already own property. I turned 40 in October last year when I also bought my first property. Am I able to open a Lisa and, if so, is it worth it?
To be eligible for the Lisa, I’m afraid you have to be under 40 and so you won’t be able to open one. Never fear, though, as I don’t think the Lisa is right for you. Savings in a Lisa can only be used for either purchasing your first home or retirement. As you already own a property, you wouldn’t be able to access your Lisa savings until you are 60 and more savings can be amassed by contributing to a workplace pension.
Lisas do not include any employer contribution element. For every £80 you pay into a Lisa, the government adds £20. Assuming you are in matched contribution workplace pension, for every £80 you pay in the government adds at least £20 (more if you are a higher-rate tax payer) and your employer could add a further £100, meaning you would get £200.
The annual allowance for contributing to a pension is £40,000, while the Lisa annual limit is £4,000. Clearly, contributions within this limit would not amass sufficient savings on their own for a comfortable retirement.
If you don’t have access to a workplace pension – say, for example, if you’re self-employed – you can open a self-invested personal pension (Sipp) scheme, which has the same tax benefits on pension contributions.
What are Lisas?
The Lifetime Isa (Lisa) is the latest addition to the Isa family. It is available to anyone aged 18 to 39 and allows you to save either for your first home or your retirement. You can deposit up to £4,000 a year into a Lisa and you will receive a 25% bonus from the government. You will receive the bonus on your deposits every year until you turn 50.
As it is an Isa, the money in your Lisa can also grow free from income tax and capital gains tax. They can also be a cash Lisa or an investment Lisa.
But you can only use your Lisa to either buy your first home – a residential property worth less than £450,000 – or to fund your retirement. This means unless you are withdrawing the money to buy that house, or you die, the money can’t be accessed until you turn 60.