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Budget 2016: New Lifetime Isa for homebuyers and retirement Budget 2016: New Lifetime Isa for homebuyers and retirement
(35 minutes later)
Millions of adults under 40 will be able to use a new Individual Savings Account (Isa) to buy a home or a pension, the chancellor has announced.Millions of adults under 40 will be able to use a new Individual Savings Account (Isa) to buy a home or a pension, the chancellor has announced.
The Lifetime Isa will be launched in April 2017, and savers will receive a 25% bonus from the government.The Lifetime Isa will be launched in April 2017, and savers will receive a 25% bonus from the government.
They will be able to put in up to £4,000 a year, with the annual bonus of up to £1,000 paid until the age of 50.They will be able to put in up to £4,000 a year, with the annual bonus of up to £1,000 paid until the age of 50.
And from April 2017 all savers will be able to put up to £20,000 a year into Isas, up from £15,240 at the moment.And from April 2017 all savers will be able to put up to £20,000 a year into Isas, up from £15,240 at the moment.
So subject to the new limit, it will be possible to have both a standard and a Lifetime Isa. So it will be possible to have both a standard and a Lifetime Isa, subject to the £20,000 limit.
The chancellor said that savers would be able to withdraw money from a Lifetime Isa at any time, and would not pay any tax on it.The chancellor said that savers would be able to withdraw money from a Lifetime Isa at any time, and would not pay any tax on it.
Those wanting to use the money to buy a home will be able to do so after just a year; those wanting to use it for retirement will have to wait until the age of 60.Those wanting to use the money to buy a home will be able to do so after just a year; those wanting to use it for retirement will have to wait until the age of 60.
Savers who have already taken out a Help to Buy Isa will be able to move their money into a Lifetime Isa.Savers who have already taken out a Help to Buy Isa will be able to move their money into a Lifetime Isa.
If they have both types of Isa, they will only be able to use the bonus from one of them to buy a home.If they have both types of Isa, they will only be able to use the bonus from one of them to buy a home.
The Help to Buy Isa scheme is due to end in November 2019. The Help to Buy Isa scheme, which is slightly less generous than the new Isa, is due to end in November 2019.
Those using the Lifetime Isa to buy property can spend up to £450,000 on a home. 'Free top up'
Pensions dilemma Those using the Lifetime Isa to buy property can spend up to £450,000 on a home, but they have to be first-time buyers.
The government said it would also look at savers being allowed to withdraw the money for "other life events". However the government said it would also look at savers being allowed to withdraw the money for "other life events".
But those just wanting to take money out for other reasons will not qualify for the bonus. They will also have to pay a 5% charge.But those just wanting to take money out for other reasons will not qualify for the bonus. They will also have to pay a 5% charge.
"The Lifetime ISA is a fantastic boost for anyone under 40 who's fighting the growing cost of getting on the property ladder," said Hannah Maundrell, editor-in-chief of Money.co.uk."The Lifetime ISA is a fantastic boost for anyone under 40 who's fighting the growing cost of getting on the property ladder," said Hannah Maundrell, editor-in-chief of Money.co.uk.
"It's not quite so appealing if you already own a house, as your cash will need to be tied up until you're 60 to get the free top-up.""It's not quite so appealing if you already own a house, as your cash will need to be tied up until you're 60 to get the free top-up."
More details of the Lifetime Isa here.
Pensions Dilemma
For those wanting to save for retirement, the Lifetime Isa raises the issue of whether it is better to save through a traditional pension, or through the Isa system.For those wanting to save for retirement, the Lifetime Isa raises the issue of whether it is better to save through a traditional pension, or through the Isa system.
Pensions are tax-free when you put the money in, but consumers pay income tax when they take the money out.Pensions are tax-free when you put the money in, but consumers pay income tax when they take the money out.
Under the Lifetime Isa, money would be put in tax-paid, but would be free of all tax when taken out.Under the Lifetime Isa, money would be put in tax-paid, but would be free of all tax when taken out.
"There is a huge risk that the Lifetime Isa will undermine pension contributions, undoing the hard work to get people saving'", said Mick McAteer, director of the Financial Inclusion Centre, a think-tank."There is a huge risk that the Lifetime Isa will undermine pension contributions, undoing the hard work to get people saving'", said Mick McAteer, director of the Financial Inclusion Centre, a think-tank.
Before the Budget, George Osborne had been considering introducing an Isa-style pension to replace traditional pensions, but rejected a change for the time being.
However, some experts believe the Lifestyle Isa has similarities to that idea.
"Philosophically it does seem to be a Pensions Isa, with a nod towards first-time buyers," said Nigel Barker, a personal tax partner at accountancy firm Deloitte.
"You're not as locked in as a pension fund; it feels more flexible."