A Guide to Lifetime ISAs

October 2021

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Everything you need to know about Lifetime ISAs

Lifetime ISAs (or LISAs) have been around for a couple of years now and are a great way for those aged 18 – 39 to build up a deposit for a first home or invest towards retirement.

What is a Lifetime ISA anyway?

A BMO Lifetime ISA helps you work towards a deposit on your first home or later life by investing what you can up to £4,000 a year. The government will then give you another 25% to give you a boost. By starting early, you have time to build those investments into a deposit, which is great news when you consider the average UK house price is £256,000*!

What are the Lifetime ISA rules?

As a starting point it’s worth checking if you fall into these criteria:

  • Are you 18 or over, but under 40?
  • Are you looking to buy your first home at some point in the future?
  • Will you be looking to buy a property under £450,000?
  • Or, are you looking to save for retirement?

If these apply to you, then a Lifetime ISA could be worth looking into.

How the BMO Lifetime ISA and government bonuses work

This is an investment product, and it works by pooling your money together, along with other investors’ money into one big pot known as a fund. Our fund manager then buys shares or assets with it. We have access to multiple investment trusts that provide a wealth of opportunities.

For Lifetime ISAs, if your investments stand at £200 then the government will give you an extra 25% (£50). If your investments stand at £1,000, the government will give you £250. Or, if your investments stand at the yearly maximum of £4,000, the government will give you an extra £1,000! The bonus is paid monthly, but the bonus limits are per tax year.

Just remember, the value of investments and any income from them can go down as well as up, and investors may not get back the original amount invested. Also, any withdrawals made from your Lifetime ISA that aren’t for an eligible home purchase or for retirement when you are 60 years old will incur a government withdrawal charge. As this charge is 25% of whatever you take out, this means you could get back less than what you put in.

Is it hard to apply?

Not at all, you can apply for a LISA online in less than 10 minutes and then open it with a minimum lump sum of £100 or set up a £25 monthly direct debit. You’ll be pleased to know your government bonus will be paid automatically once a month HMRC does all the calculations on a month-by-month basis to ensure you get the right amount (from the 6th of the month to the 5th of the next month). The frequency and timing will depend on whether you make lump sum investments or regular monthly payments. For instance, if you invest the full £4,000 allowance, you’ll get a £1,000 bonus added to your LISA a month or so later.

How do I build on my deposit?

It’s easy. Once you’ve opened your LISA, you can begin investing money into it, up to a maximum of £4,000 per tax year. Each year that your account is open, you’ll receive an additional government bonus of 25% on top of the money you’ve put in. Just remember that your investments could go down as well as up, and the value of the government bonus will in turn be impacted by any fluctuations in the value of your investments.

You’ve found a home and you’re ready to use your Lifetime ISA for the deposit

You’ve discovered the perfect home, you’ve signed the paperwork and taken all the next steps. Brilliant. It’s time to pay for your property. You just tell your solicitor or conveyancer to liaise with us and they then do the rest. Your money will be used to pay the deposit on the home, but don’t worry if the sale doesn’t go ahead. Your solicitor or conveyancer can transfer the money straight back into your Lifetime ISA, and you can keep building your investments.

Or you’re ready to use your Lifetime ISA for retirement

It’s called a Lifetime ISA for a reason, if you don’t end up buying a property with the money, or you’ve already purchased a first home, then it’s an investment option for your retirement instead. The government will keep adding their bonus up until you’re 50. You can access these investments once you turn 60 without incurring a charge. So either way it’s good to know you’ve got options.

Summing it all up

If you’re looking to buy your first home or you’re looking for another way to invest in your future, opening a Lifetime ISA could be the way forward for you. It’s easy to track, easy to set up and easy to follow. Simply find out more information here.

Let’s talk about risk

There’s an element of risk involved with a Lifetime ISA. The value of your investments can go down as well as up and you may get back less than you originally put in. You need to be aged between 18-39 and be a UK resident, and you should consider this as a longer-term investment. Tax allowances and the benefits of tax-efficient accounts are subject to change and tax treatment depends upon your individual circumstances.

Any withdrawals made from your Lifetime ISA that are not for an eligible house purchase or retirement when you are 60 years old will incur a Government withdrawal charge of 25% which means you could get back less than what you put in.

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