View more on these topics

Lifetime Isa – how it works

According to George Osborne “people like Isas – because they’re simple”. Fiona Tait is not convinced…

Contributions & bonuses

What he said: “From April 2017, anyone under the age of 40 will be able to open a Lifetime Isa and save up to £4,000 each year. And for every £4 you save, the Government will give you £1… Every year. Until you’re 50.”

What he meant: Actually you will be able to save up to £20,000 but the bonus will only apply to £4,000.

A Lifetime Isa (Lisa) can be taken out by anyone aged between age 18 and 40, however contributions may be made by anyone. At the end of the tax year a bonus equal to 25 per cent of the contributions made in that year will be paid in by the Government. The size of the fund (after investment) does not affect this in any way and in years where no contributions are made no bonus will be paid.

Planning point: It is worth considering the timing of contributions. Lump-sum contributions made just before the end of the tax year will see a very quick increase in the value of their fund which may impress some of your clients no end!


Any transfers in of existing ISA savings, or contributions above £4,000 will not attract a bonus and may potentially have to be held in a segregated account (see below)


The exception is with Help to Buy Isas (Hisas). There is a one-off opportunity to transfer any pre-6 April Hisa savings into a Lisa during the 2017/18 tax year, and these savings will count towards the bonus for that year even if they exceed the £4,000 limit. Savings made into a Hisa after 6 April will also count but only if the total of these savings, together with any saving made into the Lisa does not exceed £4,000.

Planning point: Clients, or children of clients, who are the appropriate age could effectively start contributing to a Lisa now by investing in a Hisa and then transferring soon after 6 April.

Individuals who are aged 40 or over on 6 April 2017 will not be able to open a Lisa. Anyone turning 40 in tax year 2017/18 will be able to open a Lisa before turning 40 and will receive the benefit of the bonus up to age 50.

Planning point: Contact clients who will reach age 40 in 2017/8 as a priority.

Tax-free withdrawals

What he said: “You don’t have to choose between saving for your first home, or saving for your retirement.”

What he meant: We’ve put off the choice between saving for your first home, or saving for your retirement.

Withdrawals made to fund the purchase of the saver’s first UK residence will be tax-free. This means if the money is used for a buy-to-let purchase or an overseas residence it will suffer the exit penalty.

Couples who are buying their first home together may use both of their Lisa plans so long as neither has previously owned a property. If one of them already has a property they can still use the Lisa funds but they will suffer the penalty.

Savers can also access their money tax-free if they withdraw them after age 60. There are no minimum or maximum limits and no restrictions on the speed or frequency with which withdrawals must be made.


The problem is that young savers who really can’t afford to save into both a Lisa and a pension are only putting the decision off until they actually purchase their first home. At that point if they choose to use the proceeds of their Lisa to buy a property they will have to start again if they want to save for their retirement. Of course they will already be used to saving and will also own an asset which could potentially be used to fund their retirement, which is more than they might have had without Lisa.

Planning point: Contact clients who have children/grandchildren in the relevant age group. It would be possible for them to fund Lisa savings while the child funds pensions savings.

The Treasury have also confirmed that Lisa funds will be paid out tax-free on death, and are
going to consult on possible additional access points.

Other withdrawals

What he said: “Unlike a pension you can access your money anytime without the bonus and with a small charge.”

What he meant: We’re applying an exit penalty [1].

Unlike a pension it will not be illegal to access Lisa savings before the minimum age limit, and this could be very attractive to some savers, especially younger clients and the self-employed.

Access will however come at a cost. The Government proposes that early withdrawals will lose the value of the bonus paid on the part of the fund being withdrawn, and also suffer a 5 per cent charge. Assuming all the funds held within the plan derive from the £4,000 contributions eligible for a bonus the deduction to recover the bonus and the growth applying to it will be a simple 20 per cent of the value of the withdrawal:


Tim saves £4,000 into a Lifetime Isa and gets a £1,000 bonus. After some years, this had grown to £10,000.

  • Tim withdraws £5,000.00. He forgoes the Government bonus portion, which is 20 per cent (£1,000).
  • He is charged 5 per cent of £5,000 (£250)
  • The total charge is £1,250, or 25 per cent of the withdrawal.

This is why if contributions above £4,000 are allowed it may be advantageous to hold a segregated plan. Since the bonus only applies to part of the plan, it would be preferable to make withdrawals only from the part of the plan that did not receive any bonus. That being the case the Lisa provider would have to be able to separately identify that part of the fund.


Planning point: Clients looking to access their Lisa funds should be encouraged to use any other investments first.

None of this is simple.

Further information:

Budget 2016 – George Osborne's speech

HMRC LISA summary

[1] to encourage people to keep their money invested, of course.



Woodford-backed biotech firm ‘can’t prevent fraud’

The biotech company in which Neil Woodford holds a 25 per cent stake has admitted it lacks the proper systems and controls to detect and prevent fraud. The Sunday Times reports Northwest Biotherapeutics has revealed “seven material weaknesses” in relation to fraud prevention processes. In its annual report, Northwest says it “did not maintain an […]


Standard Life acquires Elevate

Standard Life has completed a deal to acquire Axa Elevate for an undisclosed sum. The deal will almost double Standard Life’s customer base, bringing over 160,000 to the business, and raising total customers to 350,000. The combined business will also hold assets under administration of £36.4bn, 350,000 customers and net asset inflows of £5.7bn in […]

'Feeling the Squeeze'

Royal London carried out a UK wide survey with 2,500 consumers age 35-44 over the summer. The survey found that over a third, 34 per cent, said their finances felt Squeezed and so were struggling to meet day-to-day expenses, despite 87 per cent being aware that they need to save more. However, the survey did […]


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. Clive Bridgeman 7th June 2016 at 9:42 am

    Surely this age limitation constitutes “Age Discrimination” which is probably illegal??

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm