Britons saving up for their first home or for their retirement have been urged to consider opening a Lifetime ISA (LISA) – which could provide a yearly bonus of £1,000.
A saver can deposit up to £4,000 each tax year into a LISA, with any deposits getting a 25 percent bonus, up to £1,000.
Brian Byrnes is head of personal finance at Moneybox, which currently provides the top-paying LISA, at 4.25 percent.
He told Express.co.uk: “It’s proven to be an invaluable savings option for young people across the length and breadth of the country and has already enabled a whole generation (around 130,000 people) to buy their first home, far sooner than would have otherwise been possible.
“In addition, beyond any other product launched in recent years, the Lifetime ISA has helped drive real behavioural change among young people, helping them build and embed positive long-term saving habits earlier in life.”
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The funds have to be used towards purchasing a first home or they can be accessed once a saver turns 60 – otherwise there is a penalty to pay for any withdrawals.
There have been reports Chancellor Jeremy Hunt is considering announcing changes to ISA policy in the autumn statement next week.
Under the current rules, the funds can only go towards buying a home worth £450,000 or less.
Mr Byrnes said: “Looking to the future, without a doubt, LISA rules should be regularly reviewed to ensure the product remains fit for purpose.
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“Thinking about the next generation of aspiring homebuyers who are just starting on what is a five- to eight-year deposit-saving journey, we strongly believe the price cap should be index-linked to house prices and subject to an annual review.
“This will provide some much-needed reassurance and peace of mind to LISA savers who live and work in some of the most expensive parts of the UK and ensure the product remains fit for purpose for all those who need it most, into the future.
“Moneybox has also been campaigning the Chancelllor to introduce a penalty-free annual ‘Emergency Withdrawal Allowance’ so that LISA savers are not penalised if they need their money in an emergency.”
Data from the group showed that when its LISA savers had to make an unauthorised partial withdrawal, it was on average for £400, costing them £20 of their original savings.
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Mr Byrnes added: “The Lifetime ISA is a fantastic product that’s helped a whole generation of aspiring first-time buyers save and invest their way toward a deposit and it’s vital to build on this success, to ensure it continues, and to meet the needs of the next generation of home buyers.”
The 25 percent bonus is paid monthly whenever a person has deposited into their LISA. A person can open an account between the ages of 18 and 39 and deposit into until the age of 50.
ISAs have the advantage that any interest earned or growth on investments wrapped up in an ISA are not liable for tax.
The interest also does not count towards an individual’s personal savings allowance, which allows a person to earn £1,000 in interest each tax year and not pay tax, if they are on the basic rate.
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