A lifetime ISA allows you to save up to £4,000 every tax year towards your first home or retirement. The government will add 25% on top of whatever you save, meaning you could receive up to £1,000 per tax year from the state. Because the general account is also an ISA, you’ll receive interest on top of the money you put into the account, which is tax-free. You can also opt to invest the money into stocks and shares as well. To open an account, you must be between the ages of 18 and 39 and the money saved in the account must go towards your first property or your retirement. You can no longer contribute towards a LISA once you turn 50 and cannot claim the ISA until you turn 60 (*subject to rules*).

Government contributions and withdrawing from your LISA

You are allowed to withdraw money from your LISA under 3 circumstances:

• If you are buying your FIRST home
• If you are 60 and over
• If you are terminally ill with less than 12 months to live

As mentioned above, the government will contribute 25% per year on top, up to £1,000. This government bonus is added monthly, however, if you choose to withdraw money before any of the above scenarios are applicable, then the government will charge you a 25% withdrawal fee, which means if you do contribute to the maximum amount of £4,000 and then finding yourself needing it a little later in life then the government will take back the 25% bonus and another £250 off the principle £4,000 you put in, potentially leaving you out of pocket. An example is below:

“Assuming no growth, you contribute £4,000 to your LISA, the government will then give you £1,000 on top giving you £5,000. If you then choose to withdraw the money the government would charge 25% for you to do so, leaving you with £3,750.”

IG or any other provider that Minipip works with do not offer LISA accounts. For more information about LISA accounts and who may offer them, please visit the GOV. UK LISA page here.

Cash ISAs

Cash ISAs are among the most common types of ISA. Most banks and building societies offer cash ISAs to their customers. The same rules apply to all ISAs in that everyone will have a £20,000 tax-free allowance. People often choose cash ISAs because of their low-risk profile. Banks and building societies will determine the level of interest gained on the account. Usually, this is tracked close to the Bank of England’s central rate. Currently, interest rates in the UK sit near record lows meaning cash ISAs are a very low-yielding product right now. Most people are looking for alternative options now as inflationary rates are at record highs.