The Lifetime ISA (LISA) which launched in April 2017 enables savers to subscribe up to £4,000 a year and receive a government bonus of 25% of the money saved every year until age 50.
Anyone from 18 to 39 is able to open a LISA and the funds are accessible, penalty-free and tax-free, either at retirement from age 60, when you buy your first home valued at £450,000 or less or if diagnosed with a terminal illness.
For the first year only the government bonus will be paid annually (i.e. at the end of the first year) but will be paid monthly thereafter.
However, for those who invest the maximum of £4,000 in the first year and then buy a house before that 12-month bonus arrives, they will lose the £1,000 bonus – you must keep the LISA for 12 months to attract the bonus.
An interesting point is that existing savers with a help-to-buy ISA can transfer this to a LISA and get a full 25% bonus on the transfer!
While the introduction of these new savings products had initially been welcomed, the detailed rules are in fact quite complicated and could result in costly consequences for savers. With this in mind, for the LISA it may still be worth opening the account but just being aware that a bonus may not be earned in the first year if an early house purchase takes place. And, for the help-to-buy ISA, it may be advisable for individuals to wait until near the end of the tax year before they transfer it to a LISA.