HMRC has confirmed that the lifetime ISA, announced in Budget 2016, will be available from April 2017 for people under the age of 40, to help young people save for the long-term, particularly when buying a first home
From April 2017, people under the age of 40 will be able to open a Lifetime ISA and pay in up to £4,000 each year, but will be able to make contributions until the age of 50. The government will then add a 25% bonus to the contributions made.
These tax-free funds can be used to help buy a first home worth up to £450,000 a year after the account is set up. However, they must be used to buy a property to reside in and not as a buy-to-let.
If a first time home is bought alongside another first buyer each person can use their Lifetime ISA and benefit from the government bonus.
Withdrawals can be made at any point however, the government will add a charge of 25% to return the government bonus part of the fund as well as a small additional fund.
A Lifetime ISA can be opened from an individual’s 18th birthday up until their 40th, after this an account cannot be opened but contributions can continue to be made until they are 50.
The funds can be left until age 60 when it can then be released as cash or kept in the tax free environment and taken as needed.
The current Help to Buy ISA will gradually be faded out.
To address the problem with accessing Help to Buy ISA bonuses at the exchange of contract stage for first-time house purchases, the government has confirmed that the bonus will be payable via a Lifetime ISA account. The same rules on payment direct to conveyancer or solicitor will remain.
The Financial Conduct Authority (FCA) will publish a consultation this autumn on the regulatory framework for the Lifetime ISA.
The Lifetime ISA: updated design note is available here.