Fancy receiving a £32,000 bonus on your savings? Here’s what you need to know about the new Lifetime ISA

A Generic Photo of a man holding a wad of twenty pound notes. See PA Feature FINANCE Lifetime ISA. Picture credit should read: PA Photo/thinkstockphotos. WARNING: This picture must only be used to accompany PA Feature FINANCE Lifetime ISA. FINANCE_Lifetime_ISA_100537.JPG
A Generic Photo of a man holding a wad of twenty pound notes. See PA Feature FINANCE Lifetime ISA. Picture credit should read: PA Photo/thinkstockphotos. WARNING: This picture must only be used to accompany PA Feature FINANCE Lifetime ISA. FINANCE_Lifetime_ISA_100537.JPG
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New Lifetime ISAs will be made available to savers during the new tax year, which starts in April. Here’s a look at how they could help - and what the catches are:

:: Am I eligible for the Lifetime ISA?

To open a new Lifetime ISA, you must be aged 18 or over, but under 40.

:: How much can be saved into the Lifetime ISA?

Savers can put in up to £4,000 per tax year and they can put in as little or as much as they want. Contributions into a Lifetime ISA will count towards the maximum annual ISA limit. The new limit for the 2017-2018 tax year is £20,000.

You can continue to pay into a Lifetime ISA until you reach 50. The account will stay open after then, but you can’t make any more payments into it.

:: What about the bonus?

Savers will receive a 25% bonus on the amounts paid into a Lifetime ISA. So someone paying in the maximum of £4,000 per year would receive a tax-free bonus of £1,000 that year.

Over their lifetime, savers will be able to have contributions of £128,000 matched by a maximum bonus of £32,000.

:: What can I use the Lifetime ISA for?

These accounts are intended to help people save for their first home or their retirement in one savings pot.

You can withdraw the funds to buy a first home or, from the age of 60, without restrictions.

For first-time buyers, the home you buy must be in the UK, have a price of £450,000 or less, be the only home you will own, be where you intend to live, and be purchased with a mortgage.

Two first-time buyers can club together to put their Lifetime ISAs towards a home - but the £450,000 price cap still applies to the whole property.

If you’re buying a house with someone else who isn’t a first-time buyer, they will not be able to use their Lifetime ISA without a withdrawal charge.

:: I’ve already saved into a Help to Buy ISA for first-time buyers. Can I save into a Lifetime ISA?

Yes. In the tax year 2017-2018, you can transfer the full balance of your Help to Buy ISA, as it stands on April 5 2017, into your Lifetime ISA without affecting the £4,000 limit.

You can also choose to save into both schemes - but you can only use the bonus from one to buy a house.

:: What if I want to take cash out before the age of 60 for a reason other than buying my first home?

If a saver becomes terminally ill, they can withdraw their funds, including the bonus, without a charge. But savers withdrawing funds from Lifetime ISAs before they turn 60 for other reasons face a withdrawal charge of 25% of the amount withdrawn.

:: How does a Lifetime ISA compare with a workplace pension?

The Lifetime ISA is not intended as a replacement for workplace pension saving. Millions of people are being placed into a workplace pension under automatic enrolment.

As well as tax relief, people saving into a workplace pension get the benefit of their employer also paying into their pension. Free guidance about pensions is available from the Pensions Advisory Service at www.pensionsadvisoryservice.org.uk