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A Lifetime ISA is a type of savings or investment account which you never pay tax on. LISAs are used to help people aged 18 to 39 save for specific events such as their first home or retirement. Express.co.uk has compiled a guide to explain what a LISA is and what it can be used for.
What is a Lifetime ISA?
A Lifetime ISA is a tax-free savings or investments account designed to help people aged 18 to 39 buy their first home or to save for retirement.
The LISA enables people to save up to £4,000 a year towards their first home or retirement.
You are also given a cash bonus of up to £1,000 a year on top.
This means that for every £1 you save, the Government will add £1.
LISAs currently have penalty-free withdrawals meaning holders can withdraw money without facing a penalty for doing so.
This penalty-free period will last until next April.
Previously, you will be charged 25 percent of the amount withdrawn unless you are aged over 60 or purchasing your first home.
This has been cut to 20 percent until April 2021, which is in effect equivalent to the bonus being taken back.
How can you use your Lifetime ISA? Can you use your Lifetime ISA to buy a house with someone who is not a first-time buyer?
You are allowed to use a Lifetime ISA to buy a home, but there are a few restrictions in effect including:
- Only first-time buyers can use Lifetime ISAs to buy a home.
- You will need to buy a home valued at no more than £450,000.
- You must buy a home which you plan to live in rather than buying a home to rent out or intended as a holiday home.
- You must use a traditional repayment mortgage
- It must be the only home you own.
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Only first-time buyers can use a Lifetime ISA to buy a home.
This means you cannot own or have owned a home in the UK or anywhere else in the world and buy a home with the Lifetime ISA.
Lifetime ISAs are opened by individuals only – they cannot be opened with someone else.
If you plan to buy a home with someone else who is also a first-time buyer, you can each open a LISA and save money into your own Lifetime ISA accounts.
If you are buying a home with someone who has owned a property before they do not count as a first-time buyer.
But you are entitled to use your own bonus towards the price of the home you are buying together.
However, they will be unable to use their LISA towards the house.
You can use your Lifetime ISA with other government schemes as long as you meet the eligibility requirements of the other schemes you wish to participate in.
To use a LISA towards your first home, you must have had the LISA open for at least 12 months.
If you have not started a LISA and need to use it within a year, you must save elsewhere and you will be unable to use this scheme.
If you open multiple LISAs, you must have each open for 12 months at least to qualify.
You can, however, avoid this rule by transferring it all into the oldest account before you buy.
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