3 Feb 2020
The Lifetime ISA is now on its own as the ISA option for first time buyers.
At the start of December, the Help-to-Buy ISA was withdrawn for new investments. Its disappearance means that the Lifetime ISA (LISA) is now the only ISA plan that offers incentives for those savings towards their first home. However, anyone who started a Help-to-Buy ISA before 1 December can continue to contribute up to £200 a month and has until 1 December 2030 to claim their Help-to-Buy bonus.
The LISA was launched in April 2017 and is rather different from the traditional ISA:
The withdrawal penalty is a controversial feature because it claws back more than just the government bonus. A recent Freedom of Information request revealed that HMRC had collected over £9m in penalties from LISA encashments between April 2018 and November 2019.
Not so lovely LISA…
Steve saved £80 a month in a cash LISA for 18 months from April 2018, gaining a £20 government bonus on each contribution. In November 2019 he was forced to cash in his LISA after being made redundant. Low interest rates meant that the face value of his LISA savings were £1,832. However, there was a 25% (£458) penalty on encashment, which meant he received £1,374, which is £66 less than he had saved.
With the Help to Buy ISA (which had no penalties) gone, there is a risk that more young savers will end up paying LISA penalties. It is a reminder that taking advice is a wise precaution, even for what look like simple savings plans.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.