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Feb 2020

What is a Lifetime ISA, And How Does it Work?

What is a Lifetime ISA, And How Does it Work?

Launched in 2017, offering a saving bonus of 25% from the government, Lifetime ISAs offer highly attractive benefits for the right people. If you’re saving for your first home, or saving for retirement – you should be thinking about opening a Lifetime ISA. 

What is a Lifetime ISA?

A Lifetime ISA is a tax-efficient savings account/scheme which is supported by the government. It has a very high interest rate, but also has stringent regulation on what the funds can be used for.

It was Launched in April 2017, offering a yearly 25% bonus added to the account from the government.

It has a lower cap on what you can put in the account than other ISAs – the limit for the tax year 2019/2020 is £4000.

If you put the total amount into the ISA, then you can expect a £1000 bonus added from the government.

They come in both Cash and Stocks and Shares ISA forms. 

What can I use the funds for?

This account is designed to give young people a leg up on saving a deposit for their first home, whilst also squirreling money away for their retirement.

  • You can use the money in the account to pay for a deposit on your first home, which given the large 25% bonus, is a huge help to those trying to save their pennies to get on the property ladder.

The value of the home which this can be used for has a maximum value - £450,000. So, if you are looking to use the Lifetime ISA fund to buy a house which is worth more than this, you will not be able to do so.

You can only use this account to fund your first home purchase, so if you already own a home you will not be eligible to use it for this purpose - but you can still have an account and use it to save for retirement. 

  • Once you turn 60, you are eligible to withdraw the funds to use freely to fund your retirement. 

Can I open a Lifetime ISA?

In order to open a Lifetime ISA you need to be:

  • Over the age of 18
  • Under the age of 40

You can open a Lifetime ISA if you already own a property – but you can’t use the funds to buy a home if you already own a property.

You can’t make payments into the account after you turn 50.

Can I Withdraw My Savings?

In order to keep the 25% bonus and avoid any early withdrawal charges, you can only withdraw your funds at two points:

  • When buying your first home
  • When you turn 60, to fund retirement

If you withdraw your funds before this point you will loose the 25% bonus earned from the government scheme and you might face a 5% charge for early withdrawal. 

If you know you'll need your cash sooner, or want to use it for a purpose other than a first home, then a Lifetime ISA isn't for you - instead, look at Stocks and Shares ISAs or Fixed Rate Term ISAs. 

Read more about Lifetime ISA options.

Lifetime ISAs

Lifetime ISA

from Nutmeg

  • Protection Scheme: FSCS
  • Fund Choice: Fully Managed or Fixed Portfolios
  • Invest From: Min. Pay in from £100 to £4,000 to start your Lifetime ISA.

Why we like it: Simple annual portfolio management fee from 0.45% to 0.75%, incl VAT. There are also some underlying fund costs and market spread charges. Easy, online set up in minutes. Start with as little as £100 up to £4,000. Plus, live chat, helpful customer support and really useful investor tools and guides. Nutmeg are regulated by the Financial Conduct Authority and are covered by the Financial Services Compensation Scheme. Capital at risk.

  • Nutmeg Lifetime ISA: Invest in high-quality, low-cost exchange traded funds
  • Contribute up to £4,000 per year until you’re 50
  • Get a 25% government bonus: For every £4 you invest you receive a £1 bonus
  • Use your savings to buy your first home up to a value of £450,000
  • You can contribute to both a stocks and shares Lifetime ISA and a ‘regular’ stocks and shares ISA in the same tax year
  • Must be UK resident aged 18-39
  • If you need to access your money for any other reason, you’ll pay a 25% penalty

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

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You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply". 

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