What is a LISA? 25% bonus, for nothing?

I’ve written a brief piece on LISa’s before when I compared them to SIPP’s here. So, if you want to just compare the two- read over there first, as this is just going to be about LISAs.

What is a LISA?

It stands for Lifetime Individual Savings Allowance (LISA). It’s quite a new type of Individual Savings Allowance (ISA)- having only announced by the government in 2016~. It’s another type of ISA (comparison here) limited to £4,000 per tax year. It can be invested as either cash or stocks & shares/bonds and pretty much anything else.

Requirements

As with any product- there are a number of requirements you have to meet before you can use/open a LISA account.

  • Under the age of 40 when opening LISA (for first time)
  • House purchase price limit of £450,000 or used for retirement

That’s pretty much it- as long as your under 40 and want to buy a house under £450k or save for retirement, then the LISA account is open for you.

Positives:

  • Can be used to purchase first house which is great- as long as you don’t already own one, in which case- it’s for retirement only.
  • Doesn’t have any income requirements (you don’t have to be paying any tax at all)
  • Can be withdrawn at any time (subject to 25% fee on the entire amount you are withdrawing, unless it’s for your first house or you are 60+). Do note that as of May/2020 you can currently withdraw with just 20% fee (so just losing the bonus)
  • Tax relief/bonus of 25% applied to contributions… but (see negative)
  • No tax to pay on the LISA- however you decide to withdraw it (within the rules)
  • Any dividends/interest/capital gains is tax free within the LISA.
  • If you start at 18, and keep going till age 50, (with maximum contributions), you should get £33,000 from the government.

Negatives:

  • Will be counted if you ever claim any benefits etc
  • If you are already over 40 (and don’t already have one) I’m afraid it’s too late for you to open one. Rather annoying- but as time goes on, less and less people will be affected by this.
  • Limited to a maximum of £4,000 per tax year
  • Shares the same £20,000 ISA limit (subject to above £4k LISA limit)- which can be annoying if you were already using the £20k allowance (if so, SIPP is probably better for you)
  • Maximum tax relief of 25%- even if you are a higher rate tax payer.
  • Cannot be withdrawn until age 60 without a penalty – unless you are purchasing first property (currently)
  • You can only pay-in until the age of 50, but you can still get 10 years more growth until you can withdraw it.

So, hopefully you have worked out- for a few requirements (mostly locking money away for a short/long while) – you can get 25% bonus, for nothing else! I can’t imagine there are many other deals (& backed by the government) that are this good- though, if there are, please let me know!

SIPPs are pretty good (especially if you are in the higher tax bracket)- but they don’t allow withdrawal to buy a property- so they are for only for retirement.

Good platforms for LISAs?

If you aren’t even sure what platform to use for your LISA- here are a couple of options. Always do your research and make sure that you look at the fees in particular. If you are investing for retirement, then there is at least 10 years of fees to pay, so small percentages will start to make big differences as compounding takes affect.

Cash ISAs

S&S LISAs

Comments/Suggestions?

As always, just comment below- or email me- happy to hear any feedback.

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