You might have heard about the Lifetime ISA and wondered how it’s different to a pension, since both options are designed to help you save money for your retirement.
As retirement funds, there are pros and cons to each (Which? offers a helpful comparison) but one of the main differences that we want to talk about is how a Lifetime ISA can also be used to help you buy your first home.
You generally can’t withdraw from your pension until you retire, but a Lifetime ISA offers you the option of withdrawing money for an eligible house purchase if you’re a first-time buyer. This means you can use a Lifetime ISA to save up for your first home as well as for your retirement.
What is a Lifetime ISA?
The Lifetime ISA is a tax-free savings account which was launched by the government in 2017 as:
· an alternative to (not a replacement for) traditional personal pensions and SIPPs
· a way for people to save up for a house and their retirement in the same product.
The idea was that first-time buyers could use the Lifetime ISA to save up a deposit and get a 25% bonus from the government to help with the upfront costs of buying a house, and then continue to use the account after buying their first home to save towards their retirement.
Why should first-time buyers consider a Lifetime ISA?
If you’re aged 18-39 and thinking of buying your first home in the next few years, it’s worth considering opening a Lifetime ISA as you must have had it open for a year before you can use it to buy a property.
The key features and benefits of a LISA include:
· you can save up to £4,000 a year (as part of your overall £20,000 ISA allowance) until your 50th birthday
· you get a 25% bonus from the government on your savings, up to a maximum bonus amount of £1,000 a year
· you can withdraw money to buy your first house up to the value of £450,000 (you can’t withdraw penalty-free for any other purpose before you retire, though)
· you’ll get the money in time for when you exchange contracts, which means you can use it towards the seller’s deposit (required at exchange) as well as the mortgage company’s deposit (required at completion)
· if you’re buying a house with someone else and neither of you has bought a property before, you can both have a LISA – effectively doubling the bonus (although the maximum value of the property you can buy is still £450,000).
There’s more information about the Lifetime ISA on the government’s website to help you decide whether it’s right for you.
And if you need help and advice regarding buying a new home, please contact us and we’ll be happy to help.