George Osborne couldn’t let a Budget go by without tinkering with the pension system, but this time, it may actually benefit millions of people.
In a surprising move, the Chancellor has announced the launch of new Lifetime ISAs (Individual Savings Accounts) designed to help younger people buy a home, as well as save for retirement.
So who is eligible? How will they work? Read on and we explain all you need to know.
Who is eligible to open a Lifetime ISA?
Anyone aged under 40 on 6th April 2017 will be able to open a Lifetime ISA.
How much can be paid in?
If you qualify, you will be able to pay up to £4,000 each year into a Lifetime ISA.
You can make contributions to the Lifetime ISA from age 18 and until you reach the age of 50; no contributions can be made after this date.
How much will the Government pay?
The Government will add a 25% bonus to your contributions.
So, for every £4 you pay in, the Government will add £1, up to a maximum of £1,000 per year.
The maximum bonus the Government will ever pay into a Lifetime ISA is £32,000, which means you would need to have contributed £128,000 yourself.
Who will offer Lifetime ISAs?
The Government anticipates they will work in much the same way as ISAs currently do and be available from investment managers, banks and building societies either as Cash ISAs or Stocks & Shares ISAs.
Individuals will be able to open more than one Lifetime ISA during their life, but can only make contributions into one in each tax-year.
It will also be possible to transfer your Lifetime ISA from one provider to another.
What can the money be used for?
The money you save can be used to help you buy your first home, up to £450,000 in value, or taken out to help provide you with an income in retirement from the age of 60.
Any money you take out for these purposes will be tax-free.
However, should you take money out before the age of 60 for any other reason than buying your first home, you will lose the bonus added by the Government, any growth on that bonus and have to pay a 5% charge.
The money cannot be used to invest into a Buy to Let property, it must be your first home and located in the UK.
Can a couple, civil partners or husband and wife have a Lifetime ISA each?
Yes, they can.
The Lifetime ISA allowance is per person, not per household.
How will the Lifetime ISA affect the Help to Buy ISA?
The Help to Buy ISA will be open for new savers until 30th November 2019, and open to new contributions until 2029.
During the 2017/18 tax year only, those who already have a Help to Buy ISA will be able to transfer these funds into a Lifetime ISA and receive the Government bonus on those savings.
What about the ‘normal’ ISA allowance?
The maximum contribution of £4,000 per year will sit within the existing ISA allowance, which will be set at £20,000 for the 2017/18 tax-year, when the Lifetime ISA will become available.
Therefore, savers will be able to pay into a Lifetime ISA each tax year, as well as a Cash ISA, a Stocks & Shares ISA, and an Innovative Finance ISA, within the new overall ISA limit of £20,000 from April 2017.
Want to know more?
The Government will publish more detailed rules over the coming months, although you can find out more by clicking here.
