The Lifetime ISA is a longer term tax-free account that receives a government bonus.
With the launch of the Lifetime ISA fast approaching, HMRC has recently published an overview of the product’s key characteristics.
By way of summary, the Lifetime ISA can be opened by anyone who is aged 18 or over but under 40. They must be either:
• resident in the UK
• a Crown Servant (for example a diplomat or civil servant)
• the spouse or civil partner of a Crown Servant
As with other ISAs, there will be no tax to pay on any interest, income or capital gains from cash or investments held within a Lifetime ISA.
It will be possible to save up to £4,000 each year in a Lifetime ISA, although this limit, if used, will form part of the overall annual ISA limit. From the tax year 2017 to 2018, the overall annual ISA limit will be £20,000.
The product also benefits from a 25% government bonus on the amount saved, so a maximum of £1,000 each year. In the first year only, the bonus will be paid at the end of the tax year, after which it will be paid monthly.
The main purpose of the product is to either, use the money for a first home purchase (for a property valued at £250,000 or £450,000 in London), or to use the money in retirement – after age 60. This means that, unless the saver is in serious ill-health, if the money is withdrawn for any other purpose a withdrawal charge of 25% will apply. It will therefore be interesting to see how many actually take advantage of this new savings vehicle when it launches.
As tax year end approaches, there is still time to make use of your available reliefs and allowances.
This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.
As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.
It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.