It's a new tax year! So we thought you could do with some info on the new best ways to save money…in the form of LISAs.
George Osborne announced the plan to introduce Lifetime ISAs (LISAs) in his 2016 budget. The savings scheme, only available to those between 18 and 39, was most probably an attempt to appease us, the younger generation – to temper our resentment around the current property crisis. Essentially, we’ll never be able to afford to buy a house, so Osborne offered to fling us some free money through a scheme that inspires us to save by handing out bonuses every year. Sounds tempting…
LISAs are supposed to come into effect today, the first day of the tax year, but banks have shunned it as of yet, claiming that it’s too complicated for the general public to understand.
We decided to wade through all the info on LISA - maybe she could be our new friend? Let’s see.
What is a LISA?
A Lifetime Savings Account is the same as a normal ISA in the sense that the money you save, and the interest you gain, is completely tax free. This is great. But with a LISA, you are supposed to pay in throughout your lifetime, with the specific aim of saving either for a first-time property or (if you’re very prepared) for your retirement. Therefore, it is unique from the ‘Help to buy’ scheme which is only for buying a house, whereas a LISA can be used for a pension as well. By combining the two, the government hope to inspire a ‘zest for saving’ amongst young Britons.
What are the technicalities?
So a LISA lets you pay in up to £4,000 every year. That money can either be cash you’ve saved and will gain interest on, or it could be stocks and shares. It is only available for those aged 18-39, but once you have an account you can continue to save until your 50th birthday.
You will need to be registered for a mortgage on a property that costs £450,000 or less. If you want to buy a property that is more than this figure, you will not receive the yearly bonuses, so this maybe isn’t for you. Also, if you are buying a property in order to then rent it out, the scheme is not for you because it’s a saving method intended to help you buy a home that you will make cosy.
What about these bonuses?
The best thing about LISAs is that you receive a 25% bonus from the government every year, provided you leave the money untouched. So for example, if you put in £1,000 in one year, you would receive a £250 bonus, meaning that your total would then amount to £1,250 and interest would then grow.
The max bonus they give out is £32,000 - but that would only apply if you had seriously maxed out your account, by paying in £4,000 a year every year from the ages of 18 and 50 (which would be unlikely, surely no one’s that good at saving!) But, hey we’re all for free money.
PROs
Free dolla?
You have the choice of either paying in monthly amounts or depositing a lump each year
The ‘Help to Buy’ ISA has a bonus limit of £3,000, whereas the Lifetime ISA offers bonuses of up to £32,000.
Your parents/grandparents can help you out with money to go in the LISA, which will never be subjected to any inheritance tax.
You can transfer your LISA around to different providers (banks) if they start offering better interest rates for example. You don’t have to stick to the original provider you chose.
If you’re buying a first-time home with your partner, you both open separate LISAs (there is no such thing as a joint LISA) which effectively doubles the bonuses your receive each year.
CONs
As this is a lifetime savings account, if you have to withdraw money from your LISA at any point in your younger life, for anything other than the purpose of buying a home, you will face a 25% penalty taken off your overall savings. Which seems steep…
A workplace pension is still the most efficient way to save for your pension, according to the majority of experts. They worry that this new LISA will discourage under 40’s from joining their workplace pension scheme, one where you receive an employer contribution and has proven to work very well in the long term.
It is restricted to those between 18-39, whereas the ‘Help to Buy’ ISA has no upper age limit. Some people have claimed that the LISA is discriminating against those in their forties.
This is not yet tried or tested, and we are put off by the scepticism of the banks with regards to introducing it this new tax year.
You decide!
**Liked this? You might also be interested in: **
7 Ways To Deal With Your Finances Like An Actual Grown-Up, Even If You Aren't One
** Follow Maeve on Instagram @maevecampbell48**
This article originally appeared on The Debrief.