Posts Tagged ‘Savings’

Lifetime ISAs

Monday, February 20th, 2017

A reminder that from 6 April 2017 Lifetime ISAs are available as an alternative tax-free investment.

The lifetime Individual Savings Account (ISA) is a longer term tax-free account that receives a government bonus.

Details published 17 February 2017 are:

You can open a lifetime ISA if you are aged 18 or over but under 40. You must be either:

  • resident in the UK
  • a Crown Servant (for example a diplomat or civil servant)
  • the spouse or civil partner of a Crown Servant

As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within your lifetime ISA.

Saving in a lifetime ISA

You can save up to £4,000 each year in a lifetime ISA. There is no maximum monthly savings contribution, and you can continue to save in it until you reach 50. The account can stay open after then but you can’t make any more payments into it.

The £4,000 limit, if used, will form part of your overall annual ISA limit. From the tax year 2017 to 2018, the overall annual tax limit will be £20,000.

For example, you could save:

  • £11,000 in a cash ISA
  • £2,000 in a stocks and shares ISA
  • £3,000 in an innovative finance ISA
  • £4,000 in a lifetime ISA in one tax year

Your lifetime ISA won’t close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your lifetime ISA.

Lifetime ISAs can hold cash, stocks and shares qualifying investments, or a combination of both.

Government bonus

When you save into your lifetime ISA, you will receive a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year.

Withdrawals

You can withdraw the funds held in your lifetime ISA before you’re 60, but you’ll have to pay a withdrawal charge of 25% of the amount you withdraw.

A withdrawal charge will not apply if you are:

  • using it towards a first home
  • aged 60
  • terminally ill with less than 12 months to live

If you die, your lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.

Transferring a lifetime ISA

You can transfer your lifetime ISA to another lifetime ISA with a different provider without incurring a withdrawal charge. If you transfer it to a different type of ISA, you will have to pay a withdrawal charge.

Saving for your first home

Your lifetime ISA savings and the bonus can be used towards buying your first home, worth up to £450,000, without incurring a withdrawal charge. You must be buying your home with a mortgage.

You must use a conveyancer or solicitor to act for you in the purchase, and the funds must be paid direct to them by your lifetime ISA provider.

If you are buying with another first time buyer, and you each have a lifetime ISA, you can both use your government bonus. You can also buy a house with someone who isn’t a first time buyer but they will not be able to use their lifetime ISA without incurring a withdrawal charge.

Your lifetime ISA must have been opened for at least 12 months before you can withdraw funds from it to buy your first home.

If you have a Help to Buy ISA, you can transfer those savings into your lifetime ISA or you can continue to save into both – but you will only be able to use the government bonus from one to buy your first home.

New Lifetime ISA available from April 2017

Tuesday, January 24th, 2017

The Lifetime ISA will be available for young adults from April 2017 as the Savings (Government Contributions) Bill receives Royal Assent. The Help to Save scheme to help people on low incomes will be available from 2018.

The Lifetime ISA, available from 6 April 2017, can be accessed to put towards a first home or once the account holder turns 60. Under this savings scheme, adults under 40 years of age will be able to save up to £4,000 a year, with the government giving them a 25% top up on their savings.

Help to Save, which will follow the Lifetime ISA in 2018, is aimed at supporting people on low incomes to build up their savings. It carries a 50% government bonus on savings up to £50 a month for up to four years. Help to Save will be available through NS&I to any adult who is receiving working tax credit, or Universal Credit with minimum household earnings equivalent to 16 hours a week at the National Living Wage.

To encourage people to save as much as they can, the bonus will be based on the highest balance achieved in the account, not the standing balance. Roughly four million people could benefit from this new scheme.

  • Help to Save example – Saving the full £50 a month for two years would mean a bonus of £600 on £1,200 of savings – and continuing to save the maximum amount for a further two years would mean another £600 bonus.
  • Lifetime ISA example – Savers will be able to contribute up to £4,000 every year and receive a bonus of up to £1,000 – they can withdraw the savings including the bonus to put towards a first home, or leave them in the account, getting tax-free investment growth, until they reach 60.
  • for 2017-18 only, savers will be able to transfer Help to Buy: ISA savings into a Lifetime ISA without them counting towards the £4,000 contribution limit

Tax on savings

Tuesday, April 19th, 2016

From 6 April 2016, if you’re a basic rate taxpayer you’ll be able to earn up to £1,000 in savings income tax-free. Higher rate taxpayers will be able to earn up to £500. This is called the Personal Savings Allowance.

Banks and building societies will no longer deduct tax from the interest they pay you.

What counts as savings income?

Savings income includes account interest from:

  • bank and building society accounts
  • accounts with providers like credit unions or National Savings and Investments

It also includes:

  • interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
  • income from government or company bonds
  • most types of purchased life annuity payments

Interest from Individual Savings Accounts (ISAs) doesn’t count towards your Personal Savings Allowance because it’s already tax-free.

If your taxable income is less than £17,000

If your total taxable income is less than £17,000 you won’t pay tax on any savings income.

How much your Personal Savings Allowance will be

The amount of your Personal Savings Allowance depends on your adjusted net income.

The table shows your allowance from 6 April 2016, depending on whether you’re a basic, higher or additional rate taxpayer.

 

Tax rate

Income band (adjusted net income)

Personal Savings Allowance

Basic 20% Up to £43,000 Up to £1,000 in savings income is tax-free
Higher 40% £43,001 – £150,000 Up to £500 in savings income is tax-free
Additional 45% Over £150,000 No Personal Savings Allowance

 

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