ISA accounts allow people to save money while avoiding certain taxes such as CGT. The Lifetime ISA (LISA) provides the same tax incentives along with additional bonus perks.
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LISAs are designed to be used for a first home purchase or to fund retirement.
Up to £4,000 can be saved in an LISA each year up until the holder turns 50.
The government will then add a 25 percent bonus onto the savings, up to a maximum of £1,000 per year.
Money is supposed to be withdrawn from this account only for buying a home or funding retirement and if a withdrawal is made for any other reason, the holder will pay a charge.
Originally, the charge/penalty was 25 percent but plans were put in place to reduce this to 20 percent.
In response to the difficulties of coronavirus, the government decided to reduce the penalty in early May in an effort to support the public.
The announcement was made by the Economic Secretary to the Treasury John Glen with the following comments: “We know that some people are experiencing financial difficulties during these unprecedented times and we want to make it as easy as possible for people to access their savings, especially if it helps them avoid falling into high cost or unmanageable debt.
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“That’s why we are reducing the withdrawal charge for Lifetime ISAs, so people can access their funds to help get them back on their feet.
“This is part of the wide range of support we have put in place to help people who have been affected by Coronavirus with their finances”
The new law for this was processed throughout May.
However, it officially comes into force on June 4, which is just two days away.
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The new rules allowed people to backdate their withdrawals to March 6.
This means that anyone who had withdrawn money early since that date and paid a 25 percent charge could have the difference refunded.
If the refund did not happen automatically, the holder should contact the LISA provider to get it sorted.
This reduction in charge will remain in effect until April 5 2021.
LISAs and their benefits can help with a first home purchase so long as the following applies:
- The property costs £450,000 or less
- The property is bought at least 12 months after opening the LISA
- The Holder uses a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them
- The holder is buying with a mortgage
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