LISA - Does your DC have one? I have questions!

[GemLettuce]

DS just turned 18. Grandparents have given him £1000 and advised him to put it into a LISA. They say the Government will add £250 in April.

I've been reading about them on MSE and am a bit confused. Will he get the £250 even though it will be invested less than a year? So if he puts another £1k in Feb would he get £500 interest in total?

Its a lifetime isa - designed to run for 'a lifetime'. My understanding is you only get 25% on redemption, and to do that it has to be used for purchasing a property or retirement

Thanks. His grandparents said it would go towards a house deposit (or pension).

But how do they calculate interest?

The maximum annual allowance is £4k, and the government will top up £1 for every £4 you pay in (so if the full £4k is paid in, they will top up another £1k). This is to reflect the tax suffered at source .

A LISA can be a cash scheme or stocks and shares. If they open a cash scheme, you can shop around for the best rates. Stocks and shares will fluctuate according to the portfolio of S&S purchased with the LISA (this would likely be managed by the provider company rather than you).

The LISA can then be used to buy your first home or withdraw as cash (if over the age of 60).

We have LISA's and got the 25% extra in straight away.

Very interesting! I like it but dc is insisting he'll never get a mortgage as he doesn't want to be tied down 🤣

The Lisa works as normal accounts for interest - you may keep it in cash and earn interest as normal (various rates and operating fees among providers). In addition, each time you pay in, the government adds a 25% bonus to whatever amount you are paying in.

This bonus is only at the point you make a contribution so only once for each £1 you pay in from elsewhere. The bonus is NOT paid on total balance like interest would be and is not paid on other growth in the account (eg interest/investment growth).

If the money is withdrawn for any reason other than purchase of first property or pension, the bonus is given back to the government. But if the balanced is used in one of these ways, the bonus is yours to keep.

'They' don't. The government contribution is before any interest/growth if stocks and shares - those depend on what the money is invested in.

If the money is withdrawn for any reason other than purchase of first property or pension, the bonus is given back to the government.

I think the penalty is 25%... yes, that's the same percentage as they put in. But - disregarding interest for a moment, and choosing numbers that make thr calculation easy - if you put in £80 then they add 25% ie £20 which brings it up to £100. If you then withdraw it you are penalised 25% which is £25 so you get back £75
If the money has been invested a while then the capital- including the government contribution - should have grown so you shouldn't lose out. Just don't open one and then close it within a short space assuming the net effect is neutral, percentages don't work like that!

Thank you!

Let's see if I've got it ...
DS opens LISA with £1k - Govt put in £250
DS adds £200 per month (earnings from p/t job) - Govt put in £50 pm
So if DS puts in £4k in total - Govt put in £1k (max they'll put on per year)

Does the year run from April-Mar or from when you open the account?

As far as I know its from when you open the account

Sorry that should sat from when you open the account until the next 31st march

Yes, it's tax years, so your total allowance is £4k per tax year. Eg you could pay £4k in on 4 April, and another £4k on 6 April as you'd be in the new tax year. Your annual allowance is not pro-rated from when you open it - it's a total for the year.

Thanks again - very helpful.

Don't suppose anyone wants to recommend a product?

I'd vaguely heard of them and thought they were for first time buyers so not looked in to them.
Could someone kindly explain the bit about withdrawing them if you are over 60 to me please? As the idea of the Gvmnt paying me 20% or £25% interest on some savings now is obviously very appealing, but sounds incredibly unlikely ??

I opened one with Moneybox this week. Very simple process.

This explains them pretty well.

www.moneysavingexpert.com/savings/lifetime-isas/

Kite22 if you are under 40 you can open one and pay up to 4000 per year and get 25% uplift from the government, usually within 6 weeks. You cannot withdraw without penalty unless for first property purchase or after your 60th birthday. You can only add funds until your 50th birthday.
Money saving expert used to have a good breakdown of its pros and cons. There are cash and stocks and shares Lisas available but you can only open one type each year.

alsowjabcn beat me to it.

I'm hoping to open a LISA with Moneybox. It's asking for DD setup but I'd like to transfer the £4k in one go with no further DD payments if that's possible?

The problem with LISAs for house purchases is that the maximum house price has to be £450,00 or below. The limit has not changed since the product was introduced, but house prices have massively increased since then. If the property price is greater than £450,00 then you cannot use LISA savings towards it.

Just to clarify with the Lifetime ISA. If the funds are withdrawn for anything other than a first time residential purchase, a property over £450,000, withdrawn before you've had the account at least 12 months since your first payment into the account, you would be charged 25% of the total withdrawal amount. This is likely to include some of your own funds, not just the bonus you've paid in

Moneybox seem to be popular with the LISA. Skipton Building Society offer this type of account too, you don't need to set a direct debit up either. You can just pay into it as and when you want (well within the 4K maximum per tax year)

Thank you @alsowjabcn and @antshouse

There are cash and stocks and shares Lisas available but you can only open one type each year

Can you transfer to a different provider in the same year?

It should be possible to transfer a Lisa between providers but it depends if the new provider is accepting transfers.