The government recently unveiled plans for a new lifetime ISA, which will be launched in April 2017.
The new ISA addition was designed to help younger people save for both a house and their retirement.
So for anyone between the ages of 18-to-40, you can basically save up to £4,000 a year and receive a government bonus of 25%, up to £1,000 a year, until age 50. This means that for every £4 saved, the government gives you £1. Great news!
The money can be accessed tax-free to either buy a property worth up to £450,000, or at age 60 for retirement. If the money is accessed before age 60 and not used to buy a home the government bonus will be removed and a 5% charge will be levied.
Lifetime ISAs are being heralded as an alternative to saving into a pension but of course pensions still remain available and dedicated savers can save into both if they wish, receiving the tax relief on their pension contributions which they would have done previously.
If you save your money into a lifetime ISA until age 60, up to the limits allowed, and then transfer the fund into a pension, you will get the top-up into the lifetime ISA, and the 25% tax-free lump sum available through the pension.
The ISA fund transferred into a pension would then receive tax relief at your highest marginal rate of 20%, 40% or 45%.
You can then access the pension fund including the tax relief – with the first 25% taken from the fund being a tax-free lump sum.
Investors are currently able to save £40,000 Gross each year into a pension, known as the annual allowance. They can also utilise any unused allowance from the previous three years, known as ‘carry-forward’
However ‘money recycling rules’, stop you from making large pension contributions, getting tax relief, and then taking out the 25% tax-free cash right away.
Please bear in mind the tax relief available to savers could change in the future, and also the annual allowance contribution level could change.
For bespoke advice on your Pension’s and Investment’s contact Credencis.
We are situated between Derby and Nottingham, but visit clients nationwide.
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