You probably know you can earn only a limited amount in your savings account, without having to pay any tax on it. This would be far from sufficient, and especially for purposes like retirement. So, you might want to look for a way to save more and pay fewer taxes.
In case you’re unaware, there is a way you can legally do that. You can build up a higher amount of savings tax-free, using an individual savings account. These are specially meant for this purpose. It would also be a great option for people who want to save money to buy their first home.
Earlier, the government used to provide help to buy ISA for that purpose. But, those are not available any more and have been closed down. Only the one who already has an account can still avail of this arrangement. If you don’t have one, you can simply start a lifetime ISA, it will help you save more, and for more than one purpose.
How does it work?
If you get a lifetime ISA, you’ll be able to save more and earn more on the savings, than other types of accounts. To be specific, you can save as much as £4,000 every year in this account. Moreover, you’ll also get a bonus of 25% on your savings, regardless of the amount.
In total, you can earn up to £1000 on the money deposited every year. Also, this account is not just for saving cash. If you want to, you can also deposit shares, stocks, and other investment products that you have bought. Whatever amount you save in it would be deducted from your total limit of annual savings in an ISA account.
If you’re depositing money for retirement, you can do so until you reach 50 years of age. However, you would continue to receive the bonus that you’ve been receiving annually, so the savings would keep increasing.
Are you eligible for it?
The criteria you must fulfil for availing a lifetime ISA are very simple. You should be at least 18 years of age to be able to start an account, the upper age limit being 40 years. Also, you have to be a resident of Britain. There will be an exception in this rule for those who are serving in the military and are abroad for that purpose.
When can you withdraw the money?
You can withdraw the money you deposited in this account only for the purposes it’s meant for, i.e. when you’ve reached the retirement age, which is 60 years. Apart from that, you can also make a withdrawal to buy a home. However, it should be the first time that you’re purchasing one. This account is meant to help only first-time buyers. If that doesn’t apply to you, you must look for other options.
You can also make a withdrawal of your deposit, in case you’re suffering from a terminal illness. In such cases, the condition is that you must not have more than a year to live. Further, you can’t withdraw the money from this account in any other cases than the ones mentioned here.
What are the conditions of withdrawal for first-time buyers?
There are certain conditions based on which you can use the money deposited account to buy your first home. You must keep in mind that this option is available only if you’re getting a mortgage. If you buy through any other means, you’ll lose the bonus that you receive on the deposit. That’s why you might not want to buy the property by any other methods. Moreover, the property you’re buying should not exceed the value of £450,000.
This applies to all parts of the UK, including London. Also, you have to wait a year after you start depositing before you can take out any amount from the account. So, if you’re thinking of starting an account, you might want to do it as soon as you can. You must also keep in mind that you must have a solicitor, otherwise, you won’t be given the money directly. The money would be paid to them and not directly to you. Also, you have to purchase within 3 months after you withdraw the money. Otherwise, it would go back into your account. In that case, you won’t lose any of the bonus that you earned on the money. Most importantly, the property that you buy using it must be for residential purposes only.
Can you maintain it jointly with someone?
As the name suggests, every account can be held by one person only. However, you might want to use it for purposes such as buying a property to live in with your partner. It is still possible for you to buy a property for living together. Now, if the other person has a lifetime ISA as well, you can combine your savings to buy the property. Both the buyers will have a share in the property in such cases.
How many accounts can you hold?
When it comes to a lifetime ISA, you can only have one, in a year. So, you can’t open multiple of them to save more. There is no limit to how many accounts you can have in your lifetime. You can just maintain one at a time.
Can you transfer the money from your Help to Buy ISA into this account?
You get to save more and earn more on your savings in a lifetime ISA. If you have a Help to Buy, you would find that you can deposit a significantly lesser amount as compared to it. Another thing you must bring into consideration is that it serves only one purpose, which is buying your first house.
In addition to that, it would be available only till 2029, after which it’ll be closed for existing account holders as well. So, it would be inconvenient for you, if you need to save for a longer time than that. In case, you’re wondering, yes it’s possible to transfer this money into the lifetime account. This amount would also be eligible for the applicable government bonuses. You can also maintain both types of ISAs at the same time.
What are the benefits offered by lifetime ISA?
There are many ways in which this account will be beneficial for you. They make it a good option to build up your savings. Here are the biggest pros of this arrangement:
The money you earn on your savings won’t be taxable
This is probably the biggest reason why people choose this option. No matter the amount you earn on the deposit, you won’t have to pay any percentage of it. You’ll just be charged some amount in some specific cases. Other than that, you might find it a great option to build funds for your retirement. That might make it a good option for your retirement savings.
The minimum deposit amount is quite low
You’ll get a lot of flexibility with this account. The minimum requirements it has regarding the minimum deposit amount is quite low. So, you can start the account with an affordable sum. Also, you won’t face any difficulties in making regular monthly deposits.
Also allows saving investment products
As opposed to the cash-only accounts, you can also save shares and other such products in this account. That provides you with a lot of ease in managing both your cash and non-cash wealth.
The government pays bonuses in your deposits
The money you can save in this account is limited. But, whatever amount is allowed, you get a bonus of 25% on it from the government. You won’t find any other arrangement from which you can earn so much on your savings. This is one of the biggest ways in which lifetime ISA benefits you. By the time you reach the retirement age, you’ll have a good amount of money saved in your account. The earlier you start saving, the more you’ll benefit.
What are the cons of this arrangement?
Just like it has so many pros, there are some cons as well. You’ll have to face certain risks if you go for this arrangement. You must take them into account before deciding on whether it would be a good option for you.
Pensions cannot be taken out earlier
It might seem to be a good option for saving for your retirement, but you can’t withdraw money before you’re 60 years old. Further, you can start receiving a pension only at 55 years of age.
This arrangement is not stable
It is just like the Help to Buy which has been closed. You never know when this option would be closed due to a change in government policy. As for other options like a pension, they seem much more stable in comparison.