The shock announcement of the Budget was undoubtedly the Lifetime Isa – pitched at the “next generation”.
Search the Internet and you will find various descriptions of that generation – ranging from those struggling to get on the housing ladder to a group more interested in Facebook and the next iPhone than saving for retirement.
It is no secret that the Isa wrapper is hugely popular, and viewed as simpler than its pension counterpart.
This is largely down to the fact people know money held in an Isa is free of tax on income or gains, and can be accessed free of tax at any time.
The Lifetime Isa is the Chancellor’s Facebook friend request to this generation, whether it is used to purchase their first home, or boost retirement savings.
Details are still scarce at this stage, but here is what we know so far in advance of the legislation due in the autumn:
1. Eligibility
Lifetime Isas can be opened from 6 April 2017 and will be available to those aged between 18 and 40.
Like other Isas, a saver will be able to have more than one Lifetime Isa, but they will only be able to pay into one of these in each tax year.
There is provision for those who have already started Help to Buy: Isas to roll them into Lifetime Isas. Help to Buy: Isas will stop accepting new contributions in 2029.
2. Contributions
The term ‘contribution’ is used 25 times throughout the Lifetime Isa technical note. This is particularly interesting as this is more typically associated with payments into a pension. Money paid into Isa accounts is defined as a subscription. The Isa looks to have earned its first pension status update.
Contributions made to a Lifetime Isa will count towards the increased Isa allowance of £20,000 for 2017/18. This allowance applies across all available Isas (cash, stocks and shares and Innovative Finance) in any tax year.
Savers eligible to open Lifetime Isas will be able to contribute £4,000 per annum, topped up by a government bonus of up to £1,000 at the end of each tax year. The bonus will be available for contribution made until age 50.
People will understand the loss of the bonus, but a 5 per cent withdrawal is not a “small charge”Assuming these limits are unchanged, this equates to a maximum potential bonus of £32,000 on contributions of £128,000, before any interest or growth.
