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% on the money.
The LISA allows individuals to save for retirement or to buy their first home.
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.
In addition, it should be noted that existing savers who have a help-to-buy ISA are being encouraged to transfer that money into a LISA.
In the first year only a transfer from a help-to-buy ISA does not count towards the £4,000 LISA subscription limit. However, if a transfer does take place and the saver buys a property in that first 12 months, according to the Treasury, they could also lose out on the help-to-buy bonus which could be as much as £900 if the maximum of £3,600 has been saved – i.e if someone opened the account in March 2016 with the first month’s limit of £1,200 plus they added £200 in April 2016 and in each month thereafter to March 2017.
While the saver could go back to their help-to-buy ISA provider to request the bonus this may not be as simple as it sounds and is likely to cause administrative complexities.
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.