What to know about the new LISA

The new Lifetime ISA, or ‘LISA’, due to be launched in April 2017, was one of George Osborne’s surprise announcements in March 2016.

Tax Calculate - What to know about the new LISA

The Financial Times suggested at the time it was announced that the LISA could provide a pension pot for the under 40s of almost £700,000. That’s a very attractive savings plan in a financial climate that isn’t particularly saver-friendly. Now it has been released, what are the realities of the LISA? What is a LISA? Simply speaking, the LISA is a tax free ISA that can be started by 18 – 40 year olds. A maximum amount of £4000 per year can be invested, either as cash or as investments (the value of which, of course, can go down as well as up), and the returns are tax free.

Additionally, a bonus of 25% of whatever you put into it over the year is added, until you are aged 50. The LISA is intended for two specific purposes – to get young people onto the property ladder and for use in retirement. These purposes are encouraged by adding penalties to withdrawing funds from a LISA for any reasons other than purchasing your first property, or for use after your 60th birthday. There are pros and cons to substituting pension savings with a LISA, too. For example, a LISA is included in means tests for benefit entitlements, whereas pension savings are not.

Additionally, you cannot withdraw LISA funds until you’re 60, but some pension funds can be withdrawn at age 55.

There are some important comparisons to be considered with the Help to Buy ISA too, such as caps on property values, bonuses and exit charges. So, before you go rushing to take out a LISA, it’s important to decide whether it’s right for you. Take financial advice An independent financial adviser (IFA) will have all the low-down on the advantages and disadvantages of a LISA. They’ll be able to compare them with any pension plans, investments and savings you may already have. Back office systems for IFAs, from software providers like www.intelliflo.com, will help them match the right investments to your own individual financial needs for the present, and secure your finances for the future. A careful decision now could make all the difference to your income in the future.

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