The Lifetime ISA (LISA) is a popular savings scheme where a person can deposit up to £4,000 in a financial year and get a 25 percent bonus on any deposits. There is still time for a person to set up an account and pay in the £4,000 to get the £1,000 bonus before the end of the tax year on April 5.
However, there are certain stipulations about who can open a LISA and how the funds can be used.
A person can open a LISA between the ages of 18 and 39 and can deposit into the account until they are 50.
This means if a person deposited the full £4,000 each year from the age of 18, they would get a total of £32,000 in bonus payments by the age of 50.
The funds can go towards buying a first home or they can be accessed freely once a person reaches the age of 60, or if they are terminally ill with less than 12 months to live.
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If a person withdraws funds for any other reason, they will lose the bonus and face a further withdrawal charge, meaning they lose money on the amount they deposited.
People can invest in either cash LISAs and stock and shares LISAs, and have several LISA accounts, but will only be able to deposit the £4,000 limit each year between them.
It is seen as a good idea to max out the LISA as soon as possible in a tax year, to get the full bonus paid and get the maximum interest on the £5,000 total, if this is financially feasible.
At the time of writing, the top-paying LISA is with Moneybox’ cash LISA, which pays 3.5 percent, with interest paid monthly.
Brian Byrnes, head of personal finance at Moneybox, spoke about the benefits of the savings scheme.
He said: “The Lifetime ISA was launched by the government in 2017, specifically to encourage younger people to get into the habit of saving – whether that’s towards their first home, or for a more comfortable retirement.
“Every day we see how invaluable the Lifetime ISA is in helping young people start planning for their future, resulting in many thousands of people being able to buy their first home far sooner than would otherwise have been possible.
“So far an entire generation of first-time homeowners has benefited, with more than 118,000 homes bought with a Lifetime ISA across the length and breadth of the country.
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ISAs are an attractive savings option as they are tax-free with Britons avoiding tax on the interest on their ISA investments, or funds taken from ISAs.
Britons can save up to £20,000 into ISAs each tax year with savers urged to use up as much of the allowance as they can before the new tax year, when several tax allowances will be slashed.
The dividend tax annual allowance is being halved from £2,000 to £1,000 from April and again to £500 from April 2024.
Thousands of Britons are also set to be hit by capital gains tax for the first time, as the allowance is reducing from £12,300 to £6,000 next month, and then to £3,000 from April 2024.
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