What is a LISA? Lifetime ISA providers – how you can get £32,000 to put towards your retirement or first home

LIFETIME Isa's give anyone over the age of 18 the chance to save tax-free and get a free government bonus of up to £32,000 to use towards their first home, or retirement.

Here's the lowdown for those not in the know about the scheme.

What is a Lifetime ISA?

Brits between the age of 18 and 39 can save up to £4,000 a year into the Lifetime ISA (LISA), either as a lump sum or by putting in cash when you can.

The government will then add a 25 per cent bonus on top, effectively giving you free money.

It means that if you save £1,000 a year, you'll have £1,250 after 12 months, and if you save the full £4,000 a year you'll have £5,000.

While the LISA is only available for those up to the age of 39, savers can continue to put money into the account until they're 50, so you can benefit from the government bonus for up to 32 years, if you open the account when you're 18.

Saving the maximum amount in a LISA for 32 years would net you £32,000 of free government cash.

The money can be used either towards a first home worth under £450,000 (once a LISA has been held for 12 months or more), or towards retirement once you're over the age of 60.

Either way, there is no tax to pay on the money when you take it out.

However if you choose to take out the money for something that is not a pension or buying a house, you will be charged a 25 per cent penalty to get at your cash.

So if you save £50,000 over a decade and you withdrew it, you would lose £12,500.

Lifetime ISA catches

  • IF you want to buy a home worth more than £450,000 with your LISA, 25 per cent of what you withdraw is taken off
  • You can only use a LISA for a property if you have NEVER owned a property before (including a share of a property that was inherited, or a home overseas)
  • If you're a first-time buyer purchasing with someone else (a partner or friend, for example), they cannot have owned a property before
  • If you're using the money for a new home it is paid directly to a solicitor, not to you
  • If you reach the age of 40 on or before 6 April 2018 you won't be eligible for a LISA
  • If you're using the money for retirement you can access it on your 60th birthday. By contrast, you can access money in a pension from the age of 55.

Lifetime ISA or Help to Buy ISA?

Help To Buy Isas are being scrapped on November 30 in favour of  LISA so its important to make sure you've opened one in time.

The Help to Buy ISA is another government scheme open to first-time buyers. Just like the LISA, the state will add a 25 per cent bonus to what you save, to use towards a first home.

You can have both a Help to Buy ISA and a LISA, but you can only use the bonus from one of them towards buying a house.

If you've already saved into a Help to Buy ISA before the Lifetime ISA starts, you'll be allowed to transfer it into the LISA and still get the bonus.

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