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Saving for a home with a Lifetime ISA


It’s getting tougher for younger generations to buy their own properties in many places across the UK. House prices are rising quickly as populations grow and the demand for homes and land becomes ever greater. It means that for every month that goes by, that dream home could inch further and further away.

It’s that age old conundrum – you can’t afford to buy a property, but you can’t really afford to let prices get out of reach either.

So what can you do? Well, there’s a new option available to enable your savings to build alongside rising property prices.

The Lifetime ISA explained

If you are a UK national and you are under the age of 40, you will be able to benefit from the Lifetime ISA that launched on 6th April 2017. You’ll be able to save up to £4,000 tax free in your Lifetime ISA, as part of your full Stocks and Shares ISA allowance, while the government will reward you by paying £1 into your account for every £4 that you deposit. That’s a return of 25% before you even begin to think about investing that money.

What’s more, if you are saving with a partner, that’s up to £10,000 worth of savings tax free each year from just £8,000 deposited.

Sounds fantastic doesn’t it? Is there a catch I hear you ask?

Well, you won’t be eligible for a government bonus until you have held your Lifetime ISA for 12 months. After the initial twelve months have passed, you’ll have to use your Lifetime ISA to purchase your first home if you want access to it tax free before you are 60 years old.

If you cash in your Lifetime ISA before you reach 60 for any reason other than to purchase your first property, you will be liable for a repayment of 25% of the value of the Lifetime ISA (which will include any profits you’ve made from your investments). If you don’t cash in your Lifetime ISA until you are 60, you’ll benefit from the government’s 25% bonus on all deposits you made until your 50th birthday, completely tax free.

Where can you open a Lifetime ISA?

It’s a new product which means there are very few providers currently offering it. However, our featured partner, Hargreaves Lansdown, has launched their Lifetime ISA account which was available from launch of the scheme. You can download their free factsheet here to find out more.

We expect the number of providers to grow as the scheme increases in popularity. Banks and Building Societies are likely to join the current list of Stockbrokers so you’ll have plenty of choice further down the line.

What should I do with my Lifetime ISA?

If you are saving for a property, we would urge you to open an account straight away with at least the minimum needed to open the account. That way, you’ll be eligible to receive the first government bonus in twelve months time. Whether you decide to invest your Lifetime ISA in the financial markets should depend on your situation. If you are looking to purchase your property within a relatively short amount of time, you will want to have ready access to your funds and the last thing you will want to find is that the value of your investments has actually gone down, which is always a risk with short-term investments.

However, if you have more time to grow your investments, the financial markets will offer a great way to increase the value of your Lifetime ISA, meaning your deposit may be substantially larger.

Don’t forget, you’ll be getting a risk free 25% interest on each payment you make, providing you adhere to the rules that are in place of course, so you can rest assured that you are already getting a very healthy rate of return.

If you have any questions on Lifetime ISAs, feel free to post them on the comments section below and I’ll be happy to answer them for you.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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