You can save up to £4,000 every tax year into a Lifetime ISA, and you get a 25% bonus from the Government
The retirement element of the Lifetime ISA is reportedly set to be scrapped under plans for a new version of the savings product.
You can save up to £4,000 every tax year into a Lifetime ISA, and you get a 25% bonus from the Government. This means you can get up to £1,000 free every tax year.
You can save less than £4,000 and still qualify for a 25% bonus. Under the existing Lifetime ISA, these savings can only be used for your first-home, or for your retirement.
However, the new Lifetime ISA will only be available to first-time buyers. The 25% bonus will also only be paid when you are ready to purchase your home, instead of being paid monthly as it is now.
Another change to be aware of, is the withdrawal penalty for using your Lifetime ISA for any reason other than buying your first home will be removed.
If you access your funds for any other reason, you currently face a a 25% withdrawal penalty which not only wipes out the bonus, but also part of your original savings.
For example, if someone saves £4,000 into their Lifetime ISA, they would have a total pot of £5,000 once the 20% bonus of £1,000 is added to their account.
If this person decides to withdraw this cash for any reason other than their first-time home, they would be stung with the 25% penalty, which would be £1,250.
This would leave them with £3,750 remaining of their original £4,000 saving. The new Lifetime ISA will launch in April 2028, according to the Telegraph.
With the current Lifetime ISA, the property you’re buying can’t be worth more than £450,000.
This limit has been in place since the Lifetime ISA was launched in 2017 and campaigners have been calling for it to be increased, to keep up with rising house prices.
It is not known if the house price threshold will rise with the new Lifetime ISA.
A Treasury spokesman told the newspaper: “We recognise that the Lifetime Isa is not working for everyone, particularly when people’s circumstances change.
“That is why we intend to consult on a new and improved product, specifically designed to support first-time buyers and without penalty for withdrawals.”
The Government confirmed plans for a consultation on the Lifetime ISA in documents published after the Budget last November.
