Savings: People aged 18 to 50 can get £1,000 bonus a year but some over 40 aren’t eligible
Inflation rate: Expert discusses rise in April
When you subscribe we will use the information you provide to send you these newsletters. Sometimes they’ll include recommendations for other related newsletters or services we offer. Our Privacy Notice explains more about how we use your data, and your rights. You can unsubscribe at any time.
Help to Save is one type of savings scheme, which is intended for people who are on a low income, and it offers a 50 percent Government bonus on the savings. Meanwhile, the Lifetime ISA offers a generous 25 percent bonus from the Government.
There are rules surrounding what the money saved in a Lifetime ISA can be used for though.
It can be used to buy a first home, for instance, or to save for later on in life.
To open the account, the person must be aged 18 or over, but under 40.
There are limits as to how much can be paid into this account; up to £4,000 can be saved in it each tax year until the saver is 50.
As such, savers who have opened the account before their 40th birthday can continue to save in the account and hence be eligible for the bonus for another decade – until they turn 50.
Once a person turns 50, it’s no longer possible to pay into the Lifetime ISA, or earn the 25 percent bonus.
However, the account will remain open, and savings will still earn interest or investment returns.
To open and pay into a Lifetime ISA, the person must be resident in the UK, unless they’re a crown servant, or their spouse or civil partner.
So, how does the Lifetime ISA bonus work?
Those who save in their Lifetime ISA will see the Government then add a 25 percent bonus to their savings within it.
This is up to a maximum of £1,000 per tax year.
It’s also important to remember this £4,000 Lifetime ISA limit counts towards the annual ISA allowance – which is £20,000 for the 2021 to 2022 tax year.
As the Lifetime ISA is intended to save either for a first home or for later life, there are rules when it comes to withdrawing the money.
If money is withdrawn and it doesn’t meet one of the below circumstances, a penalty charge will apply.
GOV.UK explains: “You can withdraw money from your ISA if you’re:
- Buying your first home
- Aged 60 or over
- Terminally ill, with less than 12 months to live.
“You’ll pay a withdrawal charge of 25 percent if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal).”
This recovers the Government bonus received on the original savings, and the amount available to take out is less than what was put in.
Last year, the Government temporarily reduced the charge to 20 percent in response to the coronavirus pandemic, meaning a reduced withdrawal charge of 20 percent applied from March 6, 2020 to April 5, 2021.
If a person is using the money to buy their first home, to ensure the “unauthorised withdrawal” charge doesn’t apply, the following must apply:
- The property costs £450,000 or less
- The property is bought at least 12 months after making the first payment into the Lifetime ISA
- The buyer uses a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them
- The property is bought with a mortgage.
Source: Read Full Article