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May 2017

5 Reasons Why You Should Consider a Lifetime ISA

5 Reasons Why You Should Consider a Lifetime ISA

Lifetime ISAs were introduced in April 2017 as a way to allow British taxpayers to enjoy long-term tax-free savings. They allow you to save up to £4,000 per year without paying tax on the interest and the government will give you a bonus of 25% of the amount you save.

Lifetime ISAs are open to anyone aged 18-39 and you can continue to pay into them until you are 50. They are intended to be used to buy a first home (similar to a Help to Buy: ISA) or to help fund your retirement. While you can withdraw money from the ISA at any time, you will pay a 25% withdrawal charge if you do so before you turn 60, unless you use the funds to buy a qualifying first home.

Lifetime ISAs offer a number of advantages for UK savers, so here are our top five reasons why you should consider a lifetime ISA.

1) You can save money tax-free

Like any ISA, a lifetime ISA allows you to save money without paying tax on the interest you earn. You can use it for cash, stocks and share and alongside other ISA products, just as long as you don’t exceed your yearly ISA threshold. For the 2018/19 tax year, this is £20,000.

2) You get free money from the government

Because the government boosts your savings by 25% each year, you are effectively getting free money, making this a highly efficient way to save. Because you can save up to £4,000 each year and get up to £1,000 government bonus, if you opened a lifetime ISA when you turned 18 and saved the maximum each year until you were 50, you would save £128,000 and get a £32,000 bonus.

3) You can plan for the future while keeping your options open

The great thing about a lifetime ISA is that it allows you to save for a first home and your retirement at the same time and you have complete flexibility over how you use those savings. This means even if you have no immediate plans to buy a home, it is still worthwhile opening a lifetime ISA as you are investing in your future either way.

4) It may offer a better return than a personal pension

Many private personal pensions offer a lower projected return than a lifetime ISA (although this is completely dependent on what pension plan you are on). This means it may be better to invest your money into a lifetime ISA, rather than paying more into a personal pension.

This is particularly true for those who are self-employed who do not benefit from employer contributions through a workplace pension scheme.

5) It allows parents and grandparents to help build your savings

Lifetime ISAs can offer a good option for those who want to help their children and grandchildren build up savings. You can give up to £3,000 a year as a gift exempt from inheritance tax, meaning when you pass away, the money will not be factored into your estate.

This means parents and grandparents can give money to their children and grandchildren to put into a lifetime ISA once they turn 18 so they can start building up savings. The receiver will then get to keep 100% of the money, plus the government bonus, making your gift worth even more.

Find the best interest rates on lifetime ISAs

Interest rates for lifetime ISAs vary between providers, so to make sure you are getting the most out of your tax-free savings, you need to shop around. Take a look at our Lifetime ISAs page to see which providers are currently offering the most attractive deals.

Lifetime ISAs

Save for your first home and retirement

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Junior ISAs

Invest for your child’s future

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Stocks & Shares ISAs

Invest tax-free in stocks and shares 

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