I currently have a LISA (Lifetime ISA) and plan to use it to buy home or for retirement.
This blog post is to give a brief on the LISA, its features and how you can utilise it towards your first home purchase or as a retirement account.
Assuming Maggie is a 37yo lady who doesn’t own on a home and plans to buy one within the next 5 years.
Free money from the government is rare; make use of it.Praus Life Finance
- Save the maximum of £4000 a year as a lump sum, equal payments or any amount to reach the full amount. Receive 25% of all that you contribute in every financial year.
- You should be a U.K. Resident and tax payer aged between 18 – 39 inclusive to be eligible.
- Contributions to a LISA can be made until age 50.
- £4000 LISA allowance is included in the annual LISA limit for 2020/2021.
- Transfers from others ISAs into a LISA will reduce your LISA allowance for the year.
- To buy a home using a LISA, you have to be a FIRST TIME BUYER.
- LISA can be used for both a first home and retirement purposes.
Types of LISAs
- CASH LISA – available with most banks and building societies.
- Stocks & Shares LISA – available with most investment platforms.
Maggie is a 37yo SINK (Single Income with No Kids as yet). Maggie plans to buy her first home. She has other investments in Stocks and Shares ISA, SIPPs, workplace pensions.
She has decided to make use of the LISA to purchase her first home. With an annual savings target of £25,000, her plan is below
- Save £4,000 into the LISA and receive the 25% government bonus which is paid into her account monthly.
- With her plan to save six (6) months emergency fund (based on her mortgage) before purchasing her home, she saves an extra £6,000.
- She also has Sinking Pots for her annual expenses like car and insurance, home renovations, Christmas and birthday gifts a total of £5,000.
- With £10,000 left to save/invest and as a high rate tax payer, she has the option of investing this in a Stocks and Shares ISA or a SIPP.
- Stocks & Shares ISA – pretax contribution. All growth are non-taxable when withdrawn.
- SIPP – since she is contributing this from her pre-tax salary, she gets a 20% relief added to the contribution and claims the extra relief by calling HMRC. Hoping that she is a basic rate tax payer at retirement so will pay less tax.
- She decides to increase her workplace pensions and saves the £10,000 into a split of 70:30 Stocks & Shares ISA and SIPPs.
What Does Maggie Do When She Has Bought Her House?
Maggie has decided that once she has bought her house she will covert her cash LISA to a Stocks and Shares LISA and use that to save for retirement still claiming tax relief. For a basic comparison between a LISA and SIPP refer to this post.