2016 Budget - ISA changes

veryintrigued
veryintrigued Posts: 3,843
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edited 18 March 2016 at 10:46AM in ISAs & tax-free savings
This Budget provides security for working people and opportunity for the next generation. The government will:

give the next generation choice and flexibility in their savings, by increasing the ISA limit to £20,000 and launching a new flexible Lifetime ISA for under 40s in which people can save up to £4,000 each year and receive an additional 25% bonus from government. Savings, including the government bonus, can be accessed to buy a first home and in retirement

https://www.gov.uk/government/publications/budget-2016-documents

MSE Insert:

Hi everyone, you might like to see our Budget News on ISAs too.
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Comments

  • mrssjs
    mrssjs Posts: 626
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    What interest would you receive if you paid in the £4k? Is it 25% on top of the normal ISA rate?
  • d70cw6
    d70cw6 Posts: 784 Forumite
    free £1k for my missus and me each year sounds nice, even if the interest rate is nil.
  • veryintrigued
    veryintrigued Posts: 3,843
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    The ISA allowance will rise from £15,240 to £20,000 in April 2017.
  • veryintrigued
    veryintrigued Posts: 3,843
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    A brand new flexible saving opportunity for the next generation

    1.107 Building on the success of the Help to Buy: ISA, Budget 2016 gives the next generation a brand new opportunity to save in one place for a home and for retirement, and introduces new support for those who find it hardest to save. The Lifetime ISA

    1.108 The government wants to help young people save flexibly for the long term and ensure they do not have to choose between saving for retirement and saving for their first home. The Budget announces that from 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in.

    1.109 Contributions can continue to be made with the bonus paid up to the age of 50. Funds can be used to buy a first home with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement.

    1.110 The government will set the limit for property purchased using Lifetime ISA funds at £450,000. This limit will apply nationally. People can continue to open a Help to Buy: ISA until November 2019, as planned. They can also choose to open a Lifetime ISA, but will only be able to use the government bonus from one of their accounts to buy their first home. During the 2017-18 tax year, those who already have a Help to Buy: ISA will be able to transfer the savings they have built up into the Lifetime ISA and still save an additional £4,000.

    1.111 Whilst this is a product aimed at encouraging saving for the long term, the government understands that circumstances change so wants to ensure that people can access their own money if they need it whilst also keeping an incentive to leave funds invested for the long term. The government will consider whether Lifetime ISA funds plus the government bonus can be withdrawn in full for other specific life events in addition to buying a first home.

    1.112 The government proposes that savers can make withdrawals at any time for other purposes, but with the bonus element of the fund plus any interest or growth on it returned to the government, and a small 5% charge applied. The government will also explore with the industry whether there should be the flexibility to borrow funds against the Lifetime ISA without incurring a charge if the borrowed funds are fully repaid. In the US some retirement plans allow 50% to be borrowed up to a maximum of $50,000. Further details on the Lifetime ISA are set out in the document published alongside Budget.
  • DesG
    DesG Posts: 1,288
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    you can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge

    from

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf
  • andyca
    andyca Posts: 163
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    He also said that existing help to buy ISAs can be converted to Lifetime ISAs.
    I'm already a homeowner but I'm wondering if I can open a help to buy ISA this year and convert it to get the top up next month on £5200.
  • d70cw6
    d70cw6 Posts: 784 Forumite
    Detail:

    The Lifetime ISA
    The government wants to help young people save flexibly for the long term and ensure they do not have to choose between saving for retirement and saving for their first home. The Budget announces that from 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in.

    Contributions can continue to be made with the bonus paid up to the age of 50
    . Funds can be used to buy a first home with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement.

    The government will set the limit for property purchased using Lifetime ISA funds at £450,000. This limit will apply nationally. People can continue to open a Help to Buy: ISA until November 2019, as planned. They can also choose to open a Lifetime ISA, but will only be able to use the government bonus from one of their accounts to buy their first home. During the 2017-18 tax year, those who already have a Help to Buy: ISA will be able to transfer the savings they have built up into the Lifetime ISA and still save an additional £4,000.

    Whilst this is a product aimed at encouraging saving for the long term, the government understands that circumstances change so wants to ensure that people can access their own money if they need it whilst also keeping an incentive to leave funds invested for the long term. The government will consider whether Lifetime ISA funds plus the government bonus can be withdrawn in full for other specific life events in addition to buying a first home.

    The government proposes that savers can make withdrawals at any time for other purposes, but with the bonus element of the fund plus any interest or growth on it returned to the government, and a small 5% charge applied. The government will also explore with the industry whether there should be the flexibility to borrow funds against the Lifetime ISA without incurring a charge if the borrowed funds are fully repaid. In the US some retirement plans allow 50% to be borrowed up to a maximum of $50,000. Further details on the Lifetime ISA are set out in the document published alongside Budget.

    Figure: The Lifetime ISA
  • harz99
    harz99 Posts: 3,615
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    I can't see where it says whether the government "bonus" will be paid into the ISA annually, or whether it will be paid at the end of the term at age 50. A potential 25% a year one way compounded up each year, somewhat less overall the other way.


    Either way IMHO it is a savings vehicle for the rich, not the working family.


    As ever the devil will be in the detail (somewhere).
  • veryintrigued
    veryintrigued Posts: 3,843
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    harz99 wrote: »
    I can't see where it says whether the government "bonus" will be paid into the ISA annually, or whether it will be paid at the end of the term at age 50. A potential 25% a year one way compounded up each year, somewhat less overall the other way.


    Either way IMHO it is a savings vehicle for the rich, not the working family.


    As ever the devil will be in the detail (somewhere).

    Wont be paid until 60 as I read it (see above)
  • edinburgher
    edinburgher Posts: 13,450
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    I can't see where it says whether the government "bonus" will be paid into the ISA annually, or whether it will be paid at the end of the term at age 50

    The technical paper says that it will be paid at the end of the tax year.
    1.3 From April 2017, people under the age of 40 will be able to open a Lifetime ISA and contribute up to £4,000 in each tax year. The government will then provide a 25% bonus on these contributions at the end of the tax year.

    If we consider it as an investment vehicle to help with the costs of retirement, I am struggling to see the advantage of this over a pension (currently paying basic rate tax)?

    This would lock up money until 60, many people will already have private pensions that can be drawn from 55. While I am aware that the intention is to move the age at which we can take pensions so that they are in line with state retirement age -x, I don't think these changes have actually been legislated for?

    So, is it basically a less flexible pension?
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