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Osborne unveils Lifetime Isa

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The Government is to introduce a Lifetime Isa to allow consumers to choose whether to fund their first property purchase or their retirement from next year.

From April 2017, people under 40 will be able to contribute up to £4,000 a year into the new Lifetime Isa. The Government will top up savings by £1 for every £4 saved, up to the age of 50.

Funds can be used to buy a first home, up to £450,000, any time from a year after opening the account and can be withdrawn from age 60 to fund retirement.

Savings can be accessed at any time prior to that but the bonus will have to returned and a 5 per cent charge will be levied.

However, the Government is to consult on replicating the US 401k system where the bonus can be reclaimed if money is put back into the product.

The Government will also consider allowing the product to be used for other “specific life events” aside from property purchase.

In the 2017/18 tax year people with a Help to Buy Isa will be able to transfer into the Lifetime Isa and retain the £4,000 contribution limit.

Retirement Advantage pensions technical manager Andrew Tully says: “This seems to be a halfway house to the much talked about pension ISA, with a 20 per cent bonus in place of tax relief, and all benefits tax-free when taken.

“If it takes off and is successful, moving all pension saving to this format would seem inevitable.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Interesting…..

  2. this is the new pension isa he’s being going on about
    probably introduce next year if he is chancellor and wins the euro ref

  3. This surely sounds the death knell for the present system of tax relief on contributions to an RPS with 75% of the eventual fund taxable on eventual withdrawal. It’s only a matter of time.

  4. The Lifetime ISA ( http://lifetimeisa.online/ ) will be available after April 2017. It will be good For every £4 you put into the ISA account, the Government will pay £1. If you deposit £4,000 the 25% bonus will be up to £1,000 at the end of the tax year. If you deposit a further £4,000 the next year, the 25% will be based on £9,000 (£4 + £4 + £1). Giving a bonus of £2,250.

    The only problem is the £450,000 property purchase cap, which kind of limits London.

    It is good to see The Government will increase your overall Tax Free ISA Limit to £20,000

  5. Given that a lot of people under 40 will save less than £4,000 per year, their choice is ISA or workplace pension for the main part (ignoring the first time buyer bit). If you advise ISA, watch out for a complaint in the future when they realise their fund is lower than with a pension (whatever the rationale at outset). If you advise pension, watch out for a complaint in the future when they realise they will get taxed on withdrawals in retirement. I know regular premium is no longer adviser ‘space’ as such and future complaints may not concern the pile ’em high brigade, but just observing! This advisory role is getting more difficult by the week, whilst the potential for CM’C’s roles looks better than ever!! 🙂

  6. Yes; I like the idea of this…

  7. Meaning the tax relief now is replaced by tax relief in the future, plus a big boost for the housing market.

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