Lifetime ISA bonus payments: When does the Government pay your LISA bonus?
A Lifetime ISA (LISA) is a type of ISA created to help people save for their first home or retirement. Those who take out a Lifetime ISA will be entitled to a Government bonus worth 25 percent of what they pay in up to a limit. But when exactly does the Government pay your LISA bonus?
How do LISAs work?
You can use a Lifetime Individual Savings Account to save to buy your first home or save for later life.
To open a LISA you must be aged over 18, but under 40.
You can put in up to £4,000 each year, until you reach 50.
The government will add a 25 percent bonus to your savings, up to a maximum of £1,000 per year.
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The £4,000 a year counts towards your annual ISA limit, which for 2020/2021 is £20,000.
You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both.
When you turn 50, you cannot pay into your LISA or earn the 25 percent bonus any longer.
Your account will remain open and your savings will earn interest or investment returns.
How does the LISA bonus work?
You are paid a 25 percent bonus from the government.
The maximum bonus you can earn in a tax year is £1,000 and this bonus is paid monthly.
For example, if you deposit £200 into your Lifetime ISA, the Government will add an extra £50, which leaves you with £250 at the end of the tax year.
HM Revenue and Customs calculates bonus payments on a month-to-month basis.
Any bonus is calculated based on payments you make into your account from the 6th of the month to the 5th of the following month.
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As Youinvest.co.uk explains: “So if you fund your Lifetime ISA on 5 May, you’ll receive your bonus just over four weeks later.
“On the other hand, if you fund your account on 7 May, you’ll receive your bonus four weeks after the 6 June, i.e. around eight weeks later.”
It is best to check with your provider as to whether your bonus scheme is handled differently.
Some LISAs will automatically reinvest bonus payments taking advantage of any potential growth and increase in value.
Some may put your money in non-interest earning cash accounts meaning you might miss out on interest or future potential growth for your invested fund.
How to withdraw money from your LISA
You can withdraw money from your LISA in the following circumstances:
- When buying your first home: As long as you have not owned any home anywhere in the world previously, are buying a home worth less than £450,000, are buying a home you intend to live in and are using a traditional mortgage.
- When you reach 60 or above: You can make full use of this payment once you hit 60, you will not pay any tax and can use the money however you like.
- When you are terminally ill, with less than 12 months to live.
You will pay a 25 percent charge if you withdraw any cash or assets for any other reason than those outlined.
The withdrawal charge aims to recover the money the Government would have paid for the bonus and apply an additional charge to the original savings.
Therefore if you use a LISA as a short-term savings product, you could receive less back than you pay in.
If you die, your LISA – including interest and bonuses – is passed on to your beneficiaries without penalty to those in your will.
However, the LISA will lose its tax break, instead forming part of your estate for inheritance tax purposes.
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