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Ever since George Osborne’s budget summary on Wednesday people have been talking about some of the measures, including the sugar tax and the Lifetime ISA. Here, we look at the Lifetime ISA and what it means for you.

What Is It?

The Lifetime ISA will be available from April 2017. They can be opened by people between the ages of 18 and 40 and is designed to help people to save for their first house or pension.

Like a regular ISA, you won’t pay tax on the interest earned, but the government will also add an extra bonus each year. This is as much as 25% of everything you save. Subject to conditions being met.

You can open an Lifetime ISA until the age of 40 and will be able to make contributions until you’re 50 years old. Whilst you can withdraw money at any time, should you do so you won’t receive the government bonus if you do unless you are aged 60 or the funds are being used to purchase your first home. What’s more, there’s a 5% charge if you do.

What Does It Do?

It is designed to help you pay for your first home or put money away for your retirement.

Whats The Minimum You Can Put In?

There are no minimum monthly contribution amounts.

Whats The Maximum You Can Put In?

The maximum you can pay is £4,000 a year. If you do save this you’ll earn £1,000 from the government bonuses or will earn £1 for every £4 contributed.

What Are The Pros?

  • This is a way to save money for your first home or for your retirement
  • The rewards are generous
  • If you’re already paying into a pension or ISA, your lifetime ISA will run alongside them. Plus, you can still get tax relief on contributions.

What Are The Cons?

  • If you need to withdraw your money before age 60, you not only lose the bonus paid in by the government, but you’ll need to pay a 5% charge too.
  • If you’re using the Lifetime ISA to buy your first home this must cost no more than £450,000.
  • There is no certainty that future governments will stick with the system.
  • The value of a stocks and share Lifetime ISA will go up as well as down and there is no guarantee that you will receive back what you put in.

How Do I Find Out More?

If you’d like to know more, the government have a factsheet here.