The Treasury has announced the formal launch of two new government-backed savings vehicles, the Lifetime ISA (LISA) and the Help to Save scheme, and has clarified their interaction with the existing Help to Buy ISA
Following the Savings Bill passing into law, the LISA will be available from 6 April 2017. Under this savings scheme, adults under 40 years of age will be able to save up to £4,000 a year, with the government giving them a 25% top up on their savings. The money can be accessed to put towards a first home, or once the account holder turns 60.
Help to Save, which will follow in 2018, is aimed at supporting people on low incomes to build up their savings. It carries a 50% government bonus on savings up to £50 a month for up to four years. Help to Save will be available through NS&I to any adult who is receiving working tax credit, or universal credit with minimum household earnings equivalent to 16 hours a week at the national living wage.
To encourage people to save as much as they can, the bonus will be based on the highest balance achieved in the account, not the standing balance. The Treasury estimates that four million people could benefit from this new scheme.
The technical note clarifies that for 2017-18 only, savers will be able to transfer Help to Buy ISA savings into a LISA without the money counting towards the £4,000 contribution limit.
The Help to Buy ISA will be open for new savers until 30 November 2019, and savers will be able to claim a bonus until 1 December 2030. Savers will be able to save into both a Help to Buy ISA and a LISA, but will only be able to use the government bonus from one of those accounts to buy their first home.
For example, if an individual holds a Help to Buy ISA and a LISA they may transfer their Help to Buy ISA into a LISA and use the LISA to purchase the property. This must be at least 12 months after the first subscription to the LISA.
Savers also have the option to use their Help to Buy ISA with its government bonus to purchase their first home, and save their LISA for the future. They can use their LISA with its government bonus to purchase their first home, and withdraw the funds held in their Help to Buy ISA to put towards this purchase without the government bonus.
If they opt to use their Help to Buy ISA, including its government bonus, to purchase their first home and withdraw funds from their LISA to put towards the purchase, they will incur a charge.
Jane Ellison, financial secretary to the Treasury, said: ‘We know that there are many people who would like to save, but feel that there are barriers that prevent them from doing so. That’s exactly why we’ve introduced two new saving schemes with generous incentives from the government.’
Lifetime ISA updated technical note is here.