You are here

Osborne launches Lifetime ISA

The ISA appears to be a watered down version of the pension ISA mooted before the budget

16 March 2016

Add comment

A new 'lifetime ISA' that has the potential to usher in a new savings landscape for the UK will become available from April 2017.

'For those under 40, many of whom haven't had such a good deal from the pension system, I am introducing a completely new flexible way for the next generation to save,' George Osborne told the Commons.

'Young people can put money in, get a government bonus, and use it either to buy their first home or save for their retirement.'

Savers will be able to contribute a maximum of £4,000 per year, with the government making a 25 per cent contribution at the end of every tax year - this means the government will contribute a maximum of £1000.

The savings can be withdrawn to anytime to purchase a first home, or they can be withdrawn when the saver turns 60 without incurring any tax.

If a saver chooses to withdraw outside these parameters, they will not be able to withdraw the bonuses received from the government (they can only withdraw their own funds) and will incur a five per cent charge.

It will be available to anyone between the ages of 18-40 and can be contributed into until the age of 50.

The chancellor added: 'For the self-employed, it's the kind of support they simply cannot get from the pensions system today.

'We're going to consult with the industry on whether, like the American 401K, you can return money to the account to reclaim the bonus - so it is both generous and completely flexible.'

Osborne had been toying with the idea of introducing a new 'pension ISA' following the relaxation of pension withdrawals, but had been warned against the plans by the pensions industry.

The lifetime ISA represents a watered down version of that proposal, but it remains a potential segue towards reaching that target in the future.

 

Categorised in:

Tax & Wealth structuring