The newly-launched Smarterly Lifetime ISA (LISA) is a flexible way to save and invest for your first home or later life.
If you’re between the ages of 18 and 39, you can save up to £4,000 each tax year in a LISA. The government will top this up with a 25% bonus on your savings, up to a maximum of £1,000 per year.
For many people under 40, buying a first home is their top financial priority (1). You can open a LISA to save for your first home and benefit from a 25% government bonus on everything you save. You’re able to withdraw the money to buy your first home to live in (not to rent out), up to a value of £450,000.
If you’re buying your first home with a partner, you can each open a LISA and use both to save for that all-important deposit.
You can open a Help to Buy ISA and a Lifetime ISA at the same time, but only one ISA account can be used to buy a first property. However, it’s worth noting that you can transfer Help to Buy funds into a LISA. The benefit of the Lifetime ISA is that the higher allowance allows you to save more money tax free per year, and afterwards you can continue to save into it and keep benefiting from the 25% government top up for later life.
Already got your own home? You can use the LISA to save for your retirement and the government will continue to pay a 25% bonus on any new contributions until you reach 50. You can access the cash on or after your 60th birthday and use it in any way you like. At the same time, you might choose to take a certain amount out or leave all your cash in the LISA and continue to benefit from tax free savings and accumulated interest.
This is a great way to save for retirement alongside a pension scheme. With a LISA you save from net (after tax) income but the 25% bonus is upfront, so if you put £100 into a LISA, you’ll get a £25 bonus. When you take out your pension, you can only take 25% of it as a tax-free lump sum. The rest you’ll pay income tax on. With a LISA, all your savings are tax-free.
The LISA is specifically for buying your first home and/or savings for later life. You can take your cash out of the LISA at any point, but if it’s not for a first home or after 60 for retirement, you’ll be subject to a 25% withdrawal fee. The upfront cash bonus from LISAs is a real bonus, but if you take cash out for any other reason, the penalty fee applies. And it applies not just to your contributions, but to the bonus as well.
For example, if you saved £1,000 into your LISA, you’d get a £250 bonus. Without interest that’s £1,250. If you withdrew the money and it wasn’t for a first home or retirement, the 25% penalty would be £312.50. So, you’d end up with less than you put in.
If you used your yearly LISA allowance and started saving and investing from the age of 18 to 50 the government bonus would be £32,000.
In the same way as other types of ISA, you can choose to save in cash or invest in the stock market. We offer an investment LISA, which offers you a choice of funds. You can build your own investment portfolio by using our comparison tables to select from over 1,000 funds via 90 different fund managers. Or, if you’re less familiar with investing, we have a number of readymade portfolios, linked to the level of risk you’re willing to take.
An investment LISA offers the potential for higher returns on your savings when compared with cash savings, although investments do go up and down, so you may end up with less money than you put in. We offer free automatic ongoing monitoring to help you manage your investments. This means that if market conditions are becoming unusually volatile and the risk category of your investments has increased, you receive a notification through our SmarterCare system. It will also generate an alert if we identify investments with a projected returns more than 0.2% higher than your current investments and with the same level of risk. We’ll also email you a monthly summary, but you can check performance at any time under the SmarterCare tab in your account.
You only get the 25% bonus on the contributions you make, not on interest or stocks and shares growth/loss. But, once the bonus is in your account, you’ll get interest on it (or investment growth/loss).