Looking in more detail to the Lifetime ISA

After reading the headline results of the IPSOS survey on the Lifetime ISA (LISA) withdrawal conditions, I thought, “Why would you bother?” 

 

That might sound a little harsh, but unless you are buying your first home, there are better ways to save and to access your cash. If you don’t end up buying your first home, the only ways you can take a withdrawal, without penalty of losing the 25% bonus, is to leave the money until you are 60 or you have a terminal illness. Neither sound that appealing! If you take out the cash for any other reason, you will incur a 25% charge, this means you could ultimately get back less than you have invested as you effectively lose more than the bonus but also some of your own capital. 

 

There are also specific criteria for buying your new home; the value of the property cannot be over £425,000 and the account would need to have been open for over 12 months. That probably removes most first-time buyers in London, which ranks as the most expensive place for a first-time buyer to enter the housing market in the UK. Currently, the average cost of a first-time home buyer property in London is just over £510,000. I appreciate there is life beyond London though. 

 

This research was conducted by HMRC and has shown that there is a lack of understanding from both LISA holders and non-holders alike in the withdrawal rules for this savings account. 

Lifetime ISA gives the impression it’s a long-term savings account, but the point of the account is really to support first-time buyers with the added 25% bonus. There are some calls for it to be rebranded as a first-time home account, which makes it very clear what it can be used for. 

 

Like many of the government schemes, the intention was probably good but the complexity of the withdrawal limits and the ultimate cost for early withdrawal, make it a difficult choice for most to invest in. 

The only other thing to consider if you are saving for your first home is that there is a maximum you can save of only £4000, so the 25% bonus gives you a further £1000, but if you are buying with a partner, this can double as you both will have your own personal LISA allowance. This £4,000 also reduces the amount you would be able to pay into an Individual Savings Account (ISA) from £20,000 to £16,000. 

Always talk to a trusted independent financial adviser before making any decisions about longer term savings and investments. Utilise their ability to help guide you through the process and highlight any of the clauses that may not be clear at the time.