Fancy yourself a future homeowner? This nicer ISA may help!

By Charlotte Yau

Could this nicer ISA get you on the property ladder? Sounds too good to be true. But it's not!

The government wants to give you free money to get you on the property ladder. Believe it or not.

The new Lifetime ISA could provide you with some much-needed extra cash to help you buy a house. Here’s how it works and how you can get hold of some free money from the government!

Finding the spare cash to save for a mortgage deposit or putting money away for your retirement can seem almost impossible. 

Houses seem pretty expensive and it is hard to know the best place to put your money.

But that problem could be solved from April 2017 when a new savings account is launched called the Lifetime ISA.

How does the Lifetime ISA work?

Fancy some free cash from the government in return for saving? Check this out.

The government will let you save £4,000 tax-free into a Lifetime ISA each year. As a little bonus for putting your cash away the government will give you a 25% bonus at the end of each tax year. Nice!

That means if you save £4,000 between 2017 and 2018 you will get an extra £1,000.

Once you have got enough, the money saved can be put towards a mortgage deposit to get on the property ladder or as your retirement savings.

And once you turn 60 you will be able to take out all the savings tax free.

Who can open a Lifetime ISA?

Anyone aged between 18 and 40 will be able to open a Lifetime ISA savings account when they are launched.

The government bonus will be paid until the age of 50.

You will need to open a Lifetime ISA with a bank or building society and compare the best rates so you get decent returns as well as the government bonus.

Only first-time buyers can use the Lifetime ISA for a mortgage deposit but anyone can use it to save for their retirement.

There are no monthly limits on payments into the Lifetime ISA – in other words, you don't have to pay in every single month. Instead you can pay in your full allowance in a single month if you so wish.

Contributions to the Lifetime ISA will count towards your overall annual ISA allowance limit, which will stand at £20,000 for the 2017/18 tax year.

If you have money in ISAs built up in previous years you will be able to transfer it to your Lifetime ISA, and you will be able to transfer your Lifetime ISA between accounts to get the best deal.

Some or all of the savings you build up, along with the savings bonus, can be paid towards a deposit on a first home located in the UK worth up to £450,000.

Can I have a pension as well?

Your employer may have already signed you up for a workplace pension. If you have a job your contributions are taken from your salary before tax and you get what’s called tax relief on the money that goes in.

You are allowed a Lifetime ISA and a pension at the same time and doing this means you will be able to put more money away tax-free.

You can still pay into a pension and get tax relief on your contributions and benefit from the Lifetime ISA bonus at the same time.

What if I want to use the money for something else?

If you want to withdraw the money you put in at any time before you turn 60, you will lose the government bonus and any interest this generates. There will also be a 5% charge.

However, if someone is diagnosed with a terminal illness, they will be able to withdraw all funds, including the bonus, without any penalty no matter old they are.

Top takeaway

t's not everyday that someone offers you free money, let alone the government who are usually preoccupied with taking it away from you. But the lifetime ISA is a great opportunity to help get those savings together for that first deposit. Combine it with a regular tax free ISA and you could be getting the keys to your own place before you know it.

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