MONEY SAVING expert Martin Lewis has issued a reminder to anyone born between 1984 and 2006 that they can get £1,000 free.
In his BBC Sounds podcast, the financial expert highlighted the benefits of the Lifetime ISA, which rewards savers with bonus cash.
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Money Saving Expert Founder Martin Lewis Credit: Rex
He said: “The Lifetime ISA is a product you can open when you are between 18 and 40 – so the last day you can open it is the day before your 40th birthday.
“Then you can save up to £4,000 a year in it and the government will add a 25% bonus on whatever you save.
“If you have saved no more than £4,000 a year, the government will add £1,000 that year.
“You can do it year after year and keep getting the bonus until you’re 50.”
On his X account, Mr Lewis added that the advice was worth considering if “you’re aiming to buy a house one day (or your children are that age and hope to)”.
The free money offered by LISA can go towards buying a house or helping you see your retirement.
Many accounts can be opened with as little as £1 and saved in case you want to start saving larger amounts.
The savings can be used to buy your first home or can be taken after you turn 60 or older. You can also withdraw cash if you are terminally ill.
You cannot withdraw your savings under any other circumstances without incurring a painful 25% penalty.
The fee will more than wipe out any bonuses you’ve earned, meaning you’d take out less than you initially put in.
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So you need to carefully consider whether the account is right for your circumstances before piling on a pile of cash.
It came after tens of thousands of lifetime ISA holders were fined a total of £75.2m for making early withdrawals from a special bank account.
Figures released last week revealed owners were hit with an average of £755 in fines each.
The total value of LISA withdrawal costs reached £75.2m in 2023-24. after 99,650 people made unauthorized withdrawals.
According to HMRC, this is almost 40% more than the previous year, when withdrawal penalties totaled £54.3 million.
LISA WARNING
LISA was launched in April 2017 and is a savings product designed to help people save for their first home or retirement.
It has effectively replaced the previous Help to Buy ISA.
The account is tax-free and can be opened by anyone between the ages of 18 and 39.
You can save up to £4,000 a year and the government will add a 25% bonus on top, effectively giving you free money.
But the only way you can make an authorized withdrawal from your LISA is if you are buying your first home, are aged 60 or over or are terminally ill.
If you withdraw your savings for any other reason, you will pay a 25% “unauthorized withdrawal” penalty.
But this does not mean that you will only return 25% of the government bonus.
This is because you have to pay it back to the total amount – including the government bonus.
So if you saved £2,000 and got a 25% bonus, bringing you up to £2,500, and then withdrew money from your account, then you would have to pay back the 25% fee on the £2,500 – which is £625.
This means you would lose £125 of your own money.
Around 56,900 people used their LISA to buy their first home in 2023-24, and under LISA rules the home must cost £450,000 or less.
However, LISA savers must pay a penalty of 6.25% if they buy a home costing more than £450,000 – a limit that has been frozen for seven years.
This is also classified as an “unauthorized withdrawal” penalty.
This has become more of a problem in recent years as house prices have soared since the £450,000 limit was originally introduced.
According to the latest land register figures for March, the typical price of a house in the UK is £290,000.
Whereas in April 2017, when LISA was launched, a typical house cost £220,094.
What is a lifetime ISA?
FIRST-TIME LISA savers can stash away up to £4,000 in this account each year tax-free.
The government will add a 25% bonus to your savings, up to a maximum of £1,000 a year.
For example, if you save £4,000, you’ll get a £1,000 bonus.
The amount you pay in is linked to your annual ISA allowance (£20,000 for 2023/24) – for example, if you pay £1,000 into your LISA, you can still pay £19,000 into other ISA products.
Any bonus you earn does not count towards your ISA allowance.
You can open a Lifetime ISA with any bank, housing association or investment manager that offers the product.
You can only open a LISA if you are 18–39 years old.
You can have multiple lifetime ISAs, although you can only pay into one each tax year.
You can also transfer your Lifetime ISA to another provider, for example, to get a better interest rate.
If you want to use a Lifetime ISA to buy a house, there are a few restrictions to keep in mind:
- Only first-time buyers can use lifetime ISAs to buy a house, which means you can’t own or own a house in the UK or anywhere in the world.
- You will need to buy a house for no more than £450,000.
- You are certainly buying a house that you plan to live in – the scheme is not for buying a house that you want to rent out or a holiday home.
If you don’t use it to buy your first home, you can keep paying into the LISA until you’re 50.
You can then make full or partial withdrawals from your LISA, free of charge, when you turn 60.
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Source: HIS Education