QUESTION: I am in my mid-twenties and I have just started my own business. I am thinking about investing in the new Lifetime Isa (Lisa). Can you explain how it works?
ANSWER: Lifetime Isas are a new tax-efficient savings scheme designed to help people aged 18 to 39 to get on the property ladder and/or enjoy a comfortable retirement.
Under the terms of the scheme, the government will pay in £1 for every £4 saved. The maximum you can invest is £4,000 a year, meaning the 25 per cent government top-up is worth up to £1,000 a year. For 2017/18, the bonus will be added at the end of the year. In subsequent years, the bonus will be paid monthly (it is claimed by your Isa manager and added to the account). The bonus is only paid on contributions made by the account holder until he or she reaches the age of 50. Money in the account can be used at any time to buy a first home. Otherwise, it must remain in the account until the account holder reaches 60.
To qualify for a Lisa, you will need to be 18 or over and under 40 on the date you open an account. You can open an account alongside a standard Isa, a Help to Buy Isa and/or a pension fund. You will also be able to open a Lifetime Isa if you already own a property. The total allowance for all your Isa savings at the point when Lisas become available will be £20,000 a year.
You will be able to invest up to a maximum of £4,000 a year in a Lisa. The amount the government pays into your account- 25 per cent - will be on top of this amount and will not count against your limit. The more you save up to the £4,000 annual limit, the higher the bonus you will receive – up to a maximum of £1,000 a year.
Providing nothing changed in the rules governing the scheme, an 18-year old could run a Lisa for 32 years, saving a maximum of £128,000 and earning a government bonus of £32,000, giving a total of £160,000. Interest would also be earned (tax-free) on the savings as they accrued. The amount of interest will vary from provider to provider.
The Treasury is keen to stress that the Lisa is not a pension and can run alongside other long-term savings accounts. It is only available to those under 40 and is limited to £4,000 of savings a year, so older savers with more to invest are likely to find pensions the best option.
:: Janette Burns (j.burns@pkffpm.com) is associate director at PKFFPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
