The ISA family grows again
The ISA Family grows again
6 April marked the launch of the Lifetime ISA, an important addition to the ISA family.
There are now up to seven different ISAs, depending upon how you count. The latest is the Lifetime ISA, or LISA. The LISA is significantly different from her siblings, as a quick look at her main features reveals:
- You can only open a LISA, if you are aged under 40 and at least 18.
- The maximum contribution is £4,000 a tax year, which counts towards your overall £20,000 ISA contribution limit.
- The government tops up any LISA contributions made before age 50 with a 25% bonus: if you contribute the maximum £4,000, you will gain a £1,000 top up.
- As with all ISAs, any gains an income accumulate free of UK tax during the investment period.
- Any withdrawal you make from a LISA will normally be subject to a flat 25% penalty unless it is made:
- once you have reached age 60; or
- to help finance a first time purchase of a home valued at up to £450,000.
Whether a LISA is the right choice for you depends upon your personal circumstances. The 25% government bonus may look attractive, but a tax-relieved pension contribution could be the better option.
While LISA grabbed headlines, the traditional ISA was also given a boost with the contribution limit raised from £15,240 to £20,000. In practice the increase means little for cash ISAs. Ultra-low interest rates and the personal savings allowance have both reduced the cash ISA’s appeal.
On the other hand, the likely reinstatement of the election-culled plan to cut the dividend allowance from 2018/19 increases the importance of the stocks and shares ISA: even if you are a basic rate taxpayer, you could be paying 7.5% tax on some of your dividend income from next April.
The Financial Conduct Authority does not regulate tax advice. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.