Amongst the key announcements that came from the budget was the introduction of a new ‘Lifetime ISA.’ By far the most attractive feature of this new form of savings account is that contributions every year will receive a healthy 25% bonus from the government.
As the maximum annual contribution amount will initially be set at £4,000, that means the most thrifty savers could net an additional £1,000 in bonuses each year.
Lifetime ISAs will be available from April 2017, with anyone between the ages of 18 and 40 able to open an account. They’ll be able to save until they turn 50, meaning even someone at the top end of the scale could receive a five figure bonus from the government during their period of eligibility.
Whilst the yearly contributions are capped at £4,000, monthly contributions are unrestricted as long as the annual limit is not exceeded. As the maximum amount for combined ISA contributions is also set to rise from the current figure of £15,240 to £20,000 at the same time as the launch of the Lifetime ISA, savers will have the option of continuing to pay into any existing ISAs whilst taking full advantage of the £4,000 allowance.
The two intended uses of Lifetime ISAs are to help those eligible to accumulate a pension, or to save for a deposit on a first home up to a value of £450,000. Those with an existing Help To Buy ISA will be allowed to transfer those funds into a Lifetime ISA; they can choose to have both forms of savings account, but will only be allowed to put the bonus from one of the two accounts towards a property.
Savings within a Lifetime ISA will be available to withdraw at any time. However, if the withdrawal is for any purpose other than a home deposit, the government bonus and any interest or growth gained from it will be sacrificed and an additional 5% charge will also be levied, incentivising savers to keep their money where it is. After the account holder reaches their 60th birthday, they can withdraw their funds tax-free.
Crucially, the Lifetime ISA will be limited to one per person rather than one per household. That means couples choosing to each open an account can maximise the benefits offered, potentially making getting their feet on the first rung of the property ladder considerably easier.