WARNING ABOUT LIFETIME ISAs
Most of our clients have ISAs, because they are a fantastic way to grow investments in a tax free environment. Lifetime ISAs, or LISAs are not really aimed at the sort of people we work with. However pehaps you have a child, friend or colleague, typically under the age of 40 that might have a LISA – this may be worth sharing with them.
An ISA but with tax relief
Lifetime ISAS (sometimes called LISAs) are a way in which many people will opt to save money – be that to buy their first property or for later in life. This was a Government response to attempt to help young people build a deposit to get onto the property ladder (not a good one in my opinion). The total penalties savers have paid when withdrawing their money in a Lifetime ISA has been revealed by HM Revenue and Customs (HMRC). Savers who have a Lifetime ISA can get a 25% government bonus added to their savings in this type of account – up to a maximum bonus of £1,000 per year. The maximum amount which can be paid into the account is £4,000 each tax year – up until a person reaches the age of 50. But while the 25% bonus may attract some savers, there are some rules about withdrawing the savings. The money can be withdrawn from this type of ISA if a person is:
- Buying their first home
- Aged 60 or older
- Terminally ill, with less than 12 months to live.
Break the agreement, expect a hefty charge
However, a 25% charge must be paid if the saver withdraws cash or assets for any other reason. The withdrawal charge aims to recover the government bonus received, and applies an extra charge to the original savings. this means that if a person treats their Lifetime ISA as a short-term savings product, it may be that they get less back than they paid in. Data obtained by the Royal London in a Freedom of Information (FOI) request shows that HM Revenue and Customs (HMRC) have so far charged more than £9million in penalties for withdrawing money out of a Lifetime ISA. In short people that picked the WRONG type of ISA pay a price.