Government has introduced a tax-advantaged savings account, the Lifetime ISA, to support savers throughout their lives until the age of 50, which will in turn replace the problematic Help to Buy ISA from 6 April 2017
From April, residents under the age of 40 will be able to open a Lifetime ISA, saving up to £4,000 per tax year in their accounts until the age of 50. The amounts paid into an account will be eligible for a 25% government bonus.
Savings from a Lifetime ISA can be withdrawn at any time but from 6 April 2018 any withdrawals made, other than for a first-time residential purchase, terminal illness or if the account holder reaches 60, will be subject to a 25% charge.
The Lifetime ISA is expected to be particularly beneficial to younger people looking to save flexibly for the long term and when purchasing a first property, providing them with another savings option.
There will be a £4,000 limit to how much an individual can pay in each year however, any amount held in a Help to Buy ISA on 5 April 2017 can be transferred to a Lifetime ISA during the tax year 2017-18 without it counting towards the limit.
The Savings (Government Contributions) Act 2017, which makes provision for the Lifetime ISA, was introduced to Parliament in September 2016 and received Royal Assent on 16 January 2017.
The cost to HMRC of developing Lifetime ISA systems and processes is currently estimated to be around £3-£3.5m. From 2017-18 the Lifetime ISA is expected to cost the exchequer £170m, increasing to £850m on the years 2020-21.
Further information on Individual Savings Accounts: Lifetime ISA is available here.