The new UK Budget’s agenda has been released and with it, new plans to introduce the ‘Lifetime’ Individual Savings Account (commonly referred to as ISA, however the new type of account will be known as LISA), a tax-free savings account available in the UK for a longer period of time.
Using the new scheme, individuals will be permitted to contribute up to £4,000 per year from their net income (after tax) should they wish to do so. The government will then add an additional 25%, until the account holder reaches the age of 50. After the account holder reaches 60, the proceeds can with be withdrawn without being liable to taxation. For younger users of the scheme, the government states that this type of account can be especially useful for saving for a down payment on a first home.
As part of the incentive, savers will be allowed to make withdrawals at any time for other purposes, but will then have to repay the 25% top-up plus any interest or growth on it as well as a 5% penalty.
The financial industry is working to explore the possibility of users being able to withdraw from their savings without losing the bonus so long as the loan is repaid in full. HM Treasury is also considering to allow early withdrawal without loss of the bonus in the event of unplanned lifetime events arising.
For inheritance tax purposes, LISA accounts will be used like existing ISAs, with funds in the account forming part of the individual’s estate. The deceased’s spouse or civil partner can also inherit the tax advantages conferred by the nature of the account and will be able to invest as much into their own account as the deceased spouse was submitting should they wish.