The four ISAs include cash, stocks and shares, innovative finance and lifetime ISAs. However, lifetime ISAs are unique as the government will provide a tax free bonus on top of the savings pot. Lifetime ISAs are designed to be used for purchasing a first home or funding retirement. Up to £4,000 a year can be put into a Lifetime ISA up to age 50. The government will add a 25 percent bonus to these savings, up to a maximum of £1,000 a year. This yearly time frame though is not from January to December.
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Lifetime ISAs operate on a tax year calendar. In the UK, the tax year runs from 6 April to 5 April.
This means that the £4,000 limit can only put in within those dates. Any unused allowances, with their corresponding tax and bonus benefits, will be lost once the new tax year starts.
This means that savers have less than two months to take advantage of any remaining allowances they have.
Once the new tax year starts, ISA allowances will be reset.
It should be noted that while the yearly limit for Lifetime ISAs is £4,000, there is a limit of £20,000 available across other types of ISAs.
Careful consideration should be given before any money is moved around among existing accounts.
If money is withdrawn from a Lifetime ISA for any reason other than buying a first time house or funding retirement there will be a 25 percent charge.
There is still time to open a Lifetime ISA for this tax year for anyone who meets the eligibility.
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Anyone older than 18 but younger than 40 can open a lifetime ISA. They must also be a resident in the UK. Lifetime ISAs can be used to hold cash or invest in stocks and shares.
There is no interest to pay on any cash held in the ISA, nor will income or capital gains tax be paid from any investments made.
Lifetime ISAs can also make admin easier for anyone who needs to complete a tax return.
ISA interest, income or capital gains do not need to be declared in the return.
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It is prudent to take advantage of the limits available in ISAs if possible.
The government decide the limits that can be put inside ISAs and while they tend to keep the rates steady or raise them, they could also lower the amounts.
If this were the case, certain ISA holders could miss out if they do not add the maximum possible and the limit is then lowered for the next tax year.
ISA allowances are usually discussed, if not confirmed, in government budgets.
There are many ways to open an ISA. ISAs can be opened with expected institutions like banks and building societies. On top of these options, however, it may be possible to open ISAs with credit unions, friendly societies, stock brokers, peer-to-peer lending services, crowdfunding companies other financial institutions.
It is worth shopping around for opportunities as different companies will have unique perks and interest rates to entice would—be customers.
It’s also possible to transfer ISAs from one provider to another. If a person wants to do this, they must transfer the whole amount. This should be carefully considered for lifetime ISAs specifically though as transfers will trigger the 25 percent withdrawal fee.
The provider themselves should also be consulted before any transfers take place as they may impose their own restrictions and charges. Timings should also be kept an eye on. Isa transfers can take up to 30 days to occur which, if left close to the tax year deadline, could cause issues.
If an ISA holder is unhappy with how their provider has handled their circumstances they may be able to forward the matter onto the financial ombudsman service.
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