Saving money in a Lifetime ISA can be the path which some take in order to get on the property lader, while others may opt to use this account to boost savings. Eligible savers can get a 25 percent government bonus on their savings – up to a maximum bonus of £1,000 each tax year.
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Up to £4,000 can be paid into a Lifetime ISA in each tax year, with this limit counting towards the annual ISA allowance.
Usually, a withdrawal charge applies if the reason for taking the money of the account is not one of a number of specific exceptions – such as the saver being 60 or older, buying their first home, or terminally ill with less than 12 months to live.
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However, with normal life having ground to a halt during the coronavirus crisis, millions of people have already been feeling the financial impact during the UK lockdown.
As such, many will be needing to look for ways in which to make ends meet during this time.
During the lockdown, Chancellor of the Exchequer Rishi Sunak has confirmed there has been more than one and a half million new Universal Credit claims.
Meanwhile, others may look to their long-term savings in order to cover living costs.
Last week, HM Treasury announced a temporary change to the Lifetime ISA rules.
It means that people who have seen their income affected by coronavirus and who want to access their Lifetime ISA funds early will no longer face an additional withdrawal charge.
Rather, the 25 percent withdrawal charge will temporarily be reduced, helping people who need to access their money earlier as a result of the outbreak.
As such, savers will get back all the money they originally put in, although this will be subject to any investment losses incurred on stocks and shares Lifetime ISAs.
The Economic Secretary to the Treasury, John Glen said: “We know that some people are experiencing financial difficulties during these unprecedented times and we want to make it as easy as possible for people to access their savings, especially if it helps them avoid falling into high cost or unmanageable debt.
“That’s why we are reducing the withdrawal charge for Lifetime ISAs, so people can access their funds to help get them back on their feet.
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“This is part of the wide range of support we have put in place to help people who have been affected by Coronavirus with their finances.”
Prior to the temporary measures, any “unathorised” withdrawals would be subject to a charge of 25 percent of the amount withdrawn.
The Treasury will legislate for a temporary reduction in the LISA withdrawal charge to 20 percent between March 6, 2020 and April 5, 2021 (inclusive), it announced last week.
This means that account holders will only have to pay back any of the government bonus they received, but not an additional withdrawal charge of five percent.
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This rule change will be backdated to March 6, meaning that anyone who has taken out their money early since that date – and paid the 25 percent charge – will have the difference refunded.
However, it’s important for people to weigh up their options when considering the use of savings at this time.
The Money and Pensions Service website offers further guidance on managing finances during the coronavirus crisis.
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