Aspiring first-time buyers will be given a 25% boost to their savings by the Government when they open a new Lifetime ISA in April.
But what is it and how will it work? Here, we'll tell you everything you need to know.
What is the Lifetime ISA?
The Lifetime ISA - known as a LISA - has been designed to help people saving for two of life's biggest events - buying their first home and looking ahead to retirement.
Who is eligible to open one?
You must be aged over 18 and under 40 on April 6th 2017 to be eligible to open a Lifetime ISA - so if you were born after 1977, you’re in luck.
The ISA must be opened before your 40th birthday, so if you’re turning 40 soon after April then it’s wise to act quickly.
How does the bonus from the Government work?
The Government adds a 25% bonus on the money you pay in - so if you save £1,000 you’ll receive an additional £250 at the end of the year.
For the first year of the scheme (2017/18) the bonuses will be paid at the end of the first 12-month period. In subsequent years the bonus will be paid monthly.
Government bonuses are paid until you turn 50.
How much can I pay into a Lifetime ISA?
The maximum amount of money savers can annually deposit is £4,000 – so a 25% bonus on maximum payments would mean you’ll receive an additional £1,000.
So someone who opens a Lifetime ISA on their 18th birthday could receive a potential bonus of £32,000 – providing they pay in the maximum £4,000 every year until they reach 50.
What kind of home can I buy with my savings - and bonus - from my Lifetime ISA?
Savings and bonuses from a Lifetime ISA can be used to buy a home costing up to £450,000.
You must have had your account open for 12 months before you can use the ISA and the bonus to purchase a home - so the earliest you could use your savings and bonus would be April 2018.
Can I open a Lifetime ISA if I already have a Help to Buy ISA?
You can open or keep an existing Help to Buy ISA account alongside a Lifetime ISA - but when it comes to buying, you can only use the Government bonus from one of the ISAs.
I don't have a Help to Buy ISA - so should I open one, or open a Lifetime ISA in April?
Both ISAs offer a 25% bonus from the Government and are a good way to get saving for your first home.
The differences between them are:
- You can pay £4,000 a year into a Lifetime ISA - with a Help to Buy ISA, you can save up to £1,200 in your first month, then up to £200 a month after that
- You can buy a home costing up to £450,000 anywhere in the country using a Lifetime ISA, while a Help to Buy ISA can be used on homes costing up to £450,000 in London and up to £250,00 outside of the capital
- The earliest you can buy using a Lifetime ISA is April 2018 - so if you plan to buy before then, opt for a Help to Buy ISA
For more information, see the Government's fact sheet on the Lifetime ISA.