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Lifetime ISAs considerations for First time buyers

View profile for Tom Bexhell
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Are you a First time buyer looking to maximise your savings potential? A Lifetime ISA (LISA) might just be the financial tool you need. With its unique benefits tailored towards long-term savings goals, a LISA offers a compelling option for those aiming to save for their first home.

In 2019 the Government put a stop to the creation of any new Help to Buy ISA accounts. Help to Buy ISAs were a popular way for first time buyers to save for their first homes. There was however a number of draw backs to the Help to Buy ISA accounts. First was the restriction of only being able to save a maximum of £200.00 each month, and the other was the price cap of £250,000.00 (outside greater London). As a conveyancer it is such a shame to see where clients have saved for a number of years into a Help to Buy ISA account, only to be denied the Government bonus due to the rapidly increasing house prices.

Thankfully Lifetime ISAs don’t have the same drawbacks.
• Government Bonus: One of the most attractive features of a Lifetime ISA is the government bonus. For every £4 you save, the government will add a £1 bonus, up to a maximum of £1,000 per year. This means you could potentially earn an extra £1,000 annually towards your savings goals, giving your money a significant boost.
• First Home Purchase: Saving for your first home can feel like an uphill battle, but a Lifetime ISA can make it more manageable. First-time homebuyers can use their LISA savings, along with the government bonus, towards the purchase of a property valued at £450,000 or less.
• Tax-Free Growth: Like other ISA accounts, a Lifetime ISA offers tax-free growth on your savings. This means any interest earned or investment returns within the account are not subject to income tax or capital gains tax. Over time, this can result in substantial savings compared to taxable accounts.
• Retirement Savings Boost: While the primary focus of a Lifetime ISA is often on saving for a first home, it can also serve as a valuable tool for retirement planning. After the age of 60, you can withdraw funds from your LISA tax-free, making it a tax-efficient addition to your retirement portfolio.
• Encourages Regular Saving: The structure of a Lifetime ISA encourages regular saving habits, thanks to the annual government bonus. Knowing that you'll receive a bonus on your contributions can incentivise you to save consistently throughout the year, helping you build a healthy savings habit over time.

In conclusion, a Lifetime ISA offers a range of benefits that make it an attractive option for long-term savers. From the government bonus and tax-free growth to flexibility in investment options, a LISA provides a powerful tool for achieving your financial goals, whether that's buying your first home or preparing for retirement. Consider opening a Lifetime ISA today and take a proactive step towards securing your first step on the housing ladder.

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