Lifetime ISA: What happens to £1k bonus if I leave the UK?

rv4870680

Hi MSE Forum,

I'm currently 33 years old. I am planning to pay £4k into a Lifetime ISA each tax year until I turn 39 (which is the max age for Lifetime ISAs) to get the £1k government bonus each year. I'm a EU citizen and have been tax resident in the UK for a while. However, it is rather likely that I'll leave the UK to move back to my home country in a few years.

Let's assume I'll pay £4k into my Lifetime ISA for a couple of years and have accumulated a few £k of government bonus as a result. What will happen to that bonus if I leave the UK? Can I keep it or is it withdrawn? Do I need to stay in the UK until I turn 60 (which is the Lifetime ISA retirement age)? Do I need to pay any taxes? Any other deductions or tax implications I should be aware of?

Thanks for your suggestions!

eskbanker

If you emigrate from the UK then you can keep ISAs open (if the provider permits this) but are no longer allowed to make any contributions to them.  UK residents can pay into LISAs up to 50, 39 is just the last age at which to open one.

Withdrawals from a LISA before 60 (other than for a first time property purchase) entail a 25% withdrawal penalty, i.e. all of the bonus and a bit more.  The product is aimed at those wanting to buy their first property in the UK or those wishing to save/invest money to access at 60, do either of those apply to you?

Taxation is a matter for the country where you become tax-resident, i.e. there's no UK tax on ISAs but other countries may view them differently.

rv4870680

Many thanks eskbanker!

I wasn't aware that I could pay in (and get an annual £1k bonus) until I'm 50, very pleased to hear that.

Yes I wish to save/invest and only access the money at 60, so I don't incur the withdrawal penalty and effectively lose the bonus.

To your knowledge, is it correct that I won't lose the bonuses that have accumulated from payments into the LISA while I am still UK-resident as long as 1) I don't withdraw the money before turning 60 and 2) as long as I have an ISA provider that permits me to keep the LISA open until turning 60 (dispite by then not being a UK resident anymore)? Thanks again!

eskbanker

rv4870680 said:

To your knowledge, is it correct that I won't lose the bonuses that have accumulated from payments into the LISA while I am still UK-resident as long as 1) I don't withdraw the money before turning 60 and 2) as long as I have an ISA provider that permits me to keep the LISA open until turning 60 (dispite by then not being a UK resident anymore)? 

Yes, I'm not aware of any circumstances where the bonus payments could be reversed as such, i.e. once they're in the account they're blended with the rest of the balance.

rv4870680

Great, thanks again eskbanker!

vikkiew

The UK government won't claw back a bonus they have already paid but as you won't be able to pay in new money and will not eligible for the bonus after moving away, will not be able to make withdrawals without paying a penalty until 60 and will have to pay relevant CGT and so on where you file taxes a LISA is almost certainly a bad choice. If CGT can be minimised and you plan to return to the UK as a resident by 60 then it may make sense.