The Lifetime ISA will be available from April 2017 to anyone under the age of 40.
They will be able to save up to £4,000 each tax year into a Lifetime ISA and receive a government bonus of 25%. That means people who save the maximum each year will receive a £1,000 bonus each tax year from the government.
Announcing the plans in his Budget speech today, Osborne said: “You don’t have to choose between saving for your first home, or saving for your retirement. With the new Lifetime ISA the government is giving you money to do both.”
Osborne also announced that the tax-free ISA allowance will rise from £15,240 to £20,000 in April 2017.
Here are all the details we know so far about the Lifetime ISA:
Lifetime ISAs are aimed at young people
Savers can open a Lifetime ISA account from the age of 18 until the age of 40. You will receive a government bonus on contributions until you reach 50.
No savings limit
There is no maximum monthly contribution. People can save as little or as much as you want each month as long as they don’t exceed the £4,000 a year limit.
Savings must be used to buy a first home or for retirement
The savings and bonus can only be used to buy a first home which must be located in the UK and cost no more than £450,000. The money can be used at any time from 12 months after opening the account. Accounts are limited to one per person rather than one per household so if buying with a partner or friend, the saver receives a bonus.
If the savings are not totally used for a first home, the balance cannot be withdrawn tax-free until the saver reaches 60. At this point, the savings can be used for any purpose. The money can be withdrawn at any time before the age of 60, but you’ll lose the government bonus and any interest or growth on it, and you’ll also have to pay a 5% tax charge.
Opening a Lifetime ISA will be the same as opening a regular ISA
Lifetime ISAs will be available via a bank, building society or investment platform or manager.
Lifetime ISAs in addition to other ISAs
Savers can contribute to one Lifetime ISA in each tax year as well as a cash ISA, a stocks and shares ISA and Innovative Finance ISA as long as the new overall ISA limit of £20,000 from April 2017 is not exceeded.
Bonuses will be paid annually
The government bonus will be paid into the Lifetime ISA at the end of each tax year, so savers can benefit from tax-free growth on the bonus from the time it is added.
Lifetime ISA and Help to Buy ISA?
Savers can have both types of ISA but can only use the government bonus from one of the accounts to buy a first home.
For example, if a Help to Buy ISA is used with its government bonus to buy a first home, the Lifetime ISA with the bonus has to be saved for retirement.