If you qualify for a Lifetime Individual Savings Account (LISA), you could do worse than looking into getting one. The first thing to know about them is that their value can vary pretty widely according to how old you are when you take one out. At their best, they can actually make for a pretty decent retirement booster. You can open one from the age of 18, giving you a good, long run-up to make the most of it. If you’re over 39, on the other hand, you’re out of luck and need to look elsewhere. Watch out, though: even if you’re eligible to open a LISA, the interest rates aren’t high enough that you can afford to use one instead of a pension.
So, what are LISAs actually good for? One of the best answers is buying your first home. Here’s how the system works. You can pump up your LISA by as much as £4,000 a year, whether as an annual lump or by trickling the cash in whenever you can, until you hit the ripe old age of 50. As you save, the government will be topping your cash up by 25%, to a maximum of £1,000 a year. If you’re a first-time buyer, you can use your LISA cash toward your deposit - assuming the place you’re buying is worth no more than £450,000 and you’ve had your LISA open for 12 months.
If you’re not buying your first home and you’re under 60 years old, there’s a catch! Pulling cash out of your LISA will cost you 25%, basically clawing back all the bonus money the government gave you. They’ll ignore that rule if you’ve got under 12 months to live, though. If you die with cash still in your LISA, it’ll become part of your estate. Your beneficiaries won’t get charged the 25% penalty, but the account won’t be considered an ISA anymore so it’ll count toward the threshold for Inheritance Tax.
Basically, this can be a terrific option if you’re young and saving , either for your first home or to boost your retirement income alongside a pension. If that doesn’t sound like you, though, there’s a good chance you’d be better off looking elsewhere.