The Budget 2016, delivered by the Chancellor on March 16th, included some significant changes to the current ISA structure. The overall ISA subscription limit is being increased from £15,240 to £20,000 with effect from 6 April 2017. The Government has also announced a new Lifetime ISA for those aged between 18 and 40 which will become available from April 2017. While our budget summary touched upon the ISA changes and new Lifetime ISA, in this article we examine what’s new in more detail.
The Lifetime ISA is a new ISA and will sit alongside the Cash, Stocks and Shares and Innovative Finance ISAs. Qualifying investments in a Lifetime ISA will be the same as for a cash or stocks and shares ISA. The rules will in most ways be identical to opening a regular ISA and individuals will be able to open more than one Lifetime ISA during their lives but will only be able to pay into one Lifetime ISA in each tax year.
This new ISA will allow savers to contribute up to £4,000 each tax year (within the overall annual subscription) and receive a 25% bonus on those contributions from the government at the end of each tax year.
The bonus will be payable by the Government annually to allow for investors to benefit from the tax-free growth on the bonus from the time it is added. The bonus will be limited to a £1,000 maximum each year but will only apply until the investor attains age 50.
Investors can choose to withdraw their funds to purchase their first home or to retain their investment until age 60 for retirement.
The Lifetime ISA will interact with the Help to Buy ISA and during 2017-18 only, additional transfers may be made and matched from the Help to Buy: ISA. Going forward if you have both types of ISA you cannot use the Government bonus from both accounts to put towards your first house purchase.
The Government is going to explore with the industry whether there should be the flexibility to borrow funds from the Lifetime ISA without incurring a charge if the borrowed funds are fully repaid. In the US for example, some retirement plans allow 50% to be borrowed up to a maximum of $50,000. Legislation for the Lifetime ISA is expected in the autumn following engagement with the industry. Perhaps there will be more ISA changes to come?
ISA tax advantages during the administration of a deceased’s estate:
The government has confirmed that they will legislate to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate. Further plans will follow technical consultation with ISA providers. (Finance Bill 2016)
If you would like to discuss ISA changes in more detail, please do not hesitate to contact a member of our Chartered Financial Planning Team.