ISA or Individual Savings Account is one of the arrangements available for retail investment for the residents of UK. The amount invested in this account is exempt from both the income tax and tax on capital gains on its returns. The withdrawal amount from the scheme is not subject to tax either. The funds can be withdrawn at any time and with no restriction on the limit of withdrawal. It is a very useful planning tool for the retirement savings.
One can invest in ISAs if
- He/she is over 16 years for cash ISA and 18 years in case of stock ISA
- Resident of UK
- Crown servant or their civil partners or their spouse
Lifetime ISA is a very useful option for the young clan who can flexibly plan their savings for a long term, throughout their life period. By saving in such an option they will be able to plan their investment for their first house while they continue their investment for a stable and secure retired life too.
The Lifetime ISAs are designed in such a way that they work well along with the existing products. It is coined in a way far more simple for the savers to invest. It however, combines both the popularity and simplicity of the ISA model where one can invest their earnings post-tax and avail the tax-free benefit on the growth and the future withdrawal.
People who are below 40 years of age are eligible to open the Lifetime ISA accounts from the month of April 2017. These investments attract a bonus of 25% as the government contribution, at the end of the respective tax year. By contributing to the Lifetime ISA from an age of 18 till 50 years of age, the savers receive equal amount of contribution from the UK government along with a bonus of 25%.
A person can contribute any amount in this account up to a maximum of 4,000 pounds each year. This shall earn a bonus of 1,000 pounds each year along with a matching contribution from the government.
Till the age of 60 you are allowed only to withdraw Tax free amount including the bonus for the purpose of purchasing the first house, at any time after 12 months of opening the account. All the contributions (including yours, government’s share and the bonus) will enable you to invest a decent amount of 450,000 pounds.
However from the age of 60, one can withdraw from the account for other purposes also.
The accounts are limited to one person only rather for one home so as to ensure that all the first home buyers get the benefit.
If you have any help to buy your first house, you can either transfer those funds also into Lifetime ISA or save in both. But the benefit of bonus will be available only from the one you can buy a house.
You can withdraw the funds tax free after the age of 60. You are allowed to withdraw even before 60 years of age but will be foregoing the government bonus and their interest. In addition to that you will be required to pay a charge of 5% as well.
It would be prudent for a person to invest in the Lifetime ISA, utilise the funds for the first house and withdraw after the age of 60 years for reaping the full benefit of the scheme.