The Lifetime ISA, LISA, presents an opportunity for advisers to build relationships with new, younger clients.
The Lifetime ISA is a long-term savings vehicle that can be accessed early, without penalty, to help in the purchase of a first home. You must be over 18 and under 40 to open a LISA and you can pay into it until age 50. The government will add a bonus of 25% of what you pay as a top-up until age 50.
The maximum amount you can pay in a tax year is set at £4,000 (so a maximum of £5,000 including the government bonus). This £4,000 is part of your overall ISA allowance (includes stocks and shares, cash, Help to Buy, innovative finance ISAs and the LISA) which will increase to £20,000 from 6 April 2017.
You can withdraw funds from a LISA at any time, but there will usually be a penalty of 25% of the withdrawal amount unless the withdrawal is after your sixtieth birthday, in connection with the purchase of your first home, serious ill-health or following your death. As the bonus will not be paid until the end of the first year there is a concession that applies during this period allowing a LISA to be closed without penalty. From 2017/18 the bonus will be paid monthly and the concession will cease to apply.
The maximum purchase price of a first home is £450,000 and you must have had the LISA for at least twelve months before using the funds for house purchase.
For those with an existing Help to Buy ISA there is an incentive to transfer this into a LISA during 2017/18. Whilst contributions to a Help to Buy ISA also attract the same amount of government bonus, it is not paid until completion of the property purchase. Therefore the bonus cannot be included as part of the initial deposit. If the Help to Buy ISA is transferred into a LISA, the government bonus will be received in April 2018 with future bonuses paid every month.
At the point young adults are eligible for a LISA they might want to consider transferring Junior ISA (JISA) and Child Trust Fund (CTF) savings into a LISA. Transfers are restricted to the LISA annual limit of £4,000, and whilst these amounts qualify for the government bonus, they do not count towards the ISA annual subscription limit.
It is, of course, still possible for parents, grandparents and others to make gifts using their annual inheritance tax exemption, or out of ‘normal expenditure’, as they did when funding a JISA or CTF. The gifted amount would be paid to the individual who would then pay it into their LISA as part of their £4,000 permitted subscription.
For the adviser, the child of a client has now become a new client in their own right and a new relationship can be built.
LISA availability
Transact aims to launch their LISA as soon as possible, so providing the broadest range of tax wrappers for advisers to use with their clients.
Contact:
salessupport@integrafin.co.uk
020 7608 5350
Transact is the first independent, IFA-only Wrap service to be launched in the UK in 2000. Transact provides a full range of open architecture tax wrappers which can purchase, hold and report on virtually any asset that is tradeable and priceable in the UK, including all Unit Trusts, OEIC's, Investment Trusts, Equities, Gilts, VCT's, ETF's Hedge Funds and cash.