The LISA is a tax-free savings wrapper announced by the British government in April 2017.
It’s called the Lifetime ISA (LISA) and is designed as a way to help people save for either their first home or their retirement.
You are allowed to deposit a maximum of £4,000 per year into the LISA. The government then tops up your annual contribution with a further 25% (up to a maximum of £1,000 per year).
In practice, this means if you reach your maximum of £4,000, the government will add a further £1,000 to your savings pot. This additional money will also then benefit from interest, so will compound over the lifetime of the LISA.
You can deposit via a lump sum annually, payments as and when you can afford them or a monthly deposit. It’s up to you how you do it.
The LISA counts towards the annual £20,000 tax-free savings limit, but there is a slight catch – if you take the money out of your account for anything other than a house purchase or you’ve reached 60 years of age, you’ll pay a 25% penalty.
The LISA can also only be used if you are a first time buyer. If you have owned previously (anywhere in the world, not just the UK), have owned a business that owned residential property or have inherited a house (even if you sold it without living in it), you don’t qualify as a first time buyer by this set of criteria.
You also have to be aged 18-39 and a UK resident. Even if you are a UK citizen but don’t live in the UK, you don’t count.
If you do satisfy all of the criteria, the reality is that if you are actively saving for your first home a LISA is possibly your best option. You’ll benefit from a 25% bonus on your cash every year, have the flexibility to save on your terms and can save safe in the knowledge that your money is safe.
Where to get a LISA
There are a number of different LISA options, not just cash. Many providers offer a stocks and shares based product, which may be more suitable if you aren’t likely you be able to buy your house for a few years yet. It is of course more inherently risky, but the returns may be much higher.
Whichever one you decide to go with, it’s important that you understand the risks and benefits of each so you can make a fully-informed decision before you buy. In this case, it’s worth speaking to an independent financial advisor before taking the plunge.
If you’ve decided to go with a LISA, this post on the Money Saving Expert website gives you a lot of options, so you can pick the one that’s right for you.
Can a LISA Be Used With New Builds?
Yes, the LISA can be used across all kinds of different types of homes – new builds, existing builds, self-builds, land, off-plan etc all count.
The criteria simply dictates that you have to be a first time buyer and you have to live in the home – you can’t use the LISA to buy a buy-to-let or investment property. It has to be your residence otherwise it falls outside of the criteria.
The LISA is available on houses up to a £450,000 value.
How Do LISA’s Compare to Help to Buy?
Although they are similar products, there are a number of main differences between the LISA and the Help to Buy ISA…
Max Contribution Per Year: LISA £4,000, HTB £2,400 (£3,400 Yr 1)
Lump Sum Allowed?: LISA, Yes. HTB, No – monthly deposit only.
Bonus Paid: LISA Apri/May Yr 1, monthly afterwards. HTB, On completion.
Investment Option: LISA, Yes – cash and Stocks and Shares. HTB: No, cash only.
Max Property Price: LISA, £450k. HTB, £250k (£450k in London)
How Soon Can it be Used?: LISA, 12 months. HTB, 3 Months or when £1600 saved.
Available to: LISA, anyone 18-39. HTB, First time buyer aged 16+.
LISA in Summary
For the right person/people, the LISA is a great way to save for a house. They’re flexible, offer great benefits and are a way to stay disciplined with saving – if you withdraw the money for anything but a house (or retirement aged 60+) then you’ll have to pay a penalty.
If you are saving for a house, you should seriously consider a LISA.
Buying homes can be one of the most stressful things you can do in life. Keoghs Solicitors are committed to removing that stress, contact them for all full service home conveyancing.