The attractions of Lifetime ISAs are obvious—but there are drawbacks, tooby Andy Davis / March 15, 2017 / Leave a comment
Published in April 2017 issue of Prospect Magazine
In early April, the ever-expanding Isa family will spawn another member—Lisa, the Lifetime Isa. Anyone aged between 18 and 40 will be able to open a Lisa and benefit from a government promise that for every £1 they put in, up to a ceiling of £4,000 per tax year, the state will add a 25 per cent top up, worth up to £1,000. Provided the resulting fund is used to buy a first home (for no more than £450,000) or is saved for retirement, the 25 per cent bonus is safe. If the holder takes the money out for any other reason, the government top-up is forfeited.
Even allowing for those fiddly conditions, it’s a decent deal—though sadly one for which I am too old to qualify. However, as well as its obvious attractions a number of problems strike me about this new breed of Isa.
The first is that it is another example of a Treasury savings initiative that partially replicates existing tax incentives. The same is true of the Innovative Finance Isa, designed to exempt income from sources such as peer-to-peer loans from tax—it’s a grand idea but the first £1,000 of interest income for a basic-rate taxpayer is already tax-free under the savings allowance (you need an awful lot of money in the bank to earn more than that these days). Still, I guess you can’t have too many incentives to save and for higher-rate taxpayers, who receive only their first £500 of interest income tax-free, the attractions are more obvious.