The Government Incentive To Save

My son will be 18 and I want to pass him £4,000 soon in recognition of his achievements?

It’s impossible to suggest the most suitable investment without understanding a person’s needs in detail. However, I believe the new Lifetime Individual Savings Account (LISA) is worth consideration and there are already a variety of deposit and investment options within ISAs. The LISA was available from 6^th April 2017 and is very attractive to anyone under the age of 40. The government will pay a bonus of 25% of the contributions made each tax year and this is available until age 50. Anyone born on or after 7^th April 1977 will be able to open a LISA, but note those born in April 1977 had to have opened the LISA on launch day or very soon after. If a LISA starts at age 18 as much as £32,000 in bonuses is available if saving £4,000 each year to age 50. Of course I suspect the rules may change during the lifetime of the ISA, just as the current ISAs and pensions do.

LISA offers an alternative to a pension and assists people when buying their first home as long as the property value is less than £450,000. The account must be open for at least a year before being able to make a withdrawal for house purchase. At the date of the property purchase the LISA provider will also claim a bonus for the current tax year savings so it will be beneficial to ensure savings are maximised prior to completion of the purchase. There will be a withdrawal penalty for any money taken out of the account before the age of 60 unless it is being used in first time home buying. The government will want the bonus back and a 5% penalty. Consultation is on going on the ability to take loans from the LISA before age 60 too, so you do not lose the bonus. Look out for further announcements before April 2017.

Young savers will benefit from 2 incentivised savings products: auto enrolment at work (receives employer contributions and government bonus) and LISA (just a government bonus). Both are tax free in life, but auto enrolment schemes cannot be withdrawn from prior to age 55 (just 25% is tax free when you do) whereas a LISA is wholly tax and penalty free from age 60. It would not be surprising to find LISA is offered alongside workplace pension schemes in the future.

If you have any questions regarding the LISA or any other Financial Planning queries  please contact us.