Tax breaks for LISA 

The Lifetime Individual Savings Account or LISA, as it is often shortened to, was launched in April 2017. Aimed to encourage young people (specifically those aged 18-40 years old) to simultaneously save for their first home and retirement as both are major concerns for the younger generation.

There has been a lot of noise around if ISA’s are still a viable savings option. Our article, ‘Can you still make money from an ISA?’ gives light on this question. This article concentrates on the tax breaks of a Lifetime ISA.

Key points of LISA 

Our article ‘LISA – A flexible way for under forties to save’ discusses LISA in great detail, but below is a recap of the key points to note:

  • Open to anyone aged between 18-40
  • You can pay in contributions up to £4000 each year
  • The government contributes a bonus of 25% (up to the value of £1000) at the end of each tax year
  • Interest is added to both the contribution and the bonus
  • The bonus is given on contributions up the age of 50
  • Money contributed can be held in cash, stocks or shares

Important point: If the money paid into a LISA is used for anything other than a deposit for a first home or retirement after the age of 60, you will be hit with a penalty fee, which is calculated at 25%.

Tax breaks for LISA

Points to consider:

  • Unlike pensions, employers can’t contribute into a LISA
  • You can withdraw money from a pension from 55 years, this is set at 60 years old with LISA
  • You do not receive tax relief on the contributions made into a LISA, whereas you do with pension contributions
  • Tax is not payable on money withdrawals for retirement with a LISA
  • Withdrawals from a pension is paid at your rate of tax (i.e. Basic, Higher, Additional) after the 25% tax free lump sum has been taken
  • For higher rate tax payers, pensions offer more tax benefits, as you receive 40% tax relief on pension contributions

Who can a LISA benefit?

Those who may benefit from contributing into a LISA include:

  • self-employed workers, including freelancers and small business owners
  • employees and contractors who don’t have a workplace pension
  • those who are low earners, and
  • workers who employers are paying in the minimum contribution to their work pension

AJN Accountants are specialists in helping contractors, freelancers and small businesses to save tax and time.

Please contact us for more information:

T: 020 3866 8951

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