LISAs Lifetime ISAs April Fools Day Launch

LISAs Lifetime ISAs April Fools Day Launch.

The Savings (Government Contributions) Bill had its first reading in Parliament last week, with its second reading on 17 October, with a timetable to have legislation in place for launch on April 1^st 2017.

Why should you be interested?

It affects contributions that government will make e.g. the new Lifetime Instant Savings Account (LISA) , the Lifetime ISA now also known as the Help to Save Account.

What is the Lifetime ISA?

For any individual under the age of 40 can start a plan, they will be allowed to save in a LISA up to £4,000 per year until the age of 50 with a 25% bonus added by the Government.  It is aimed to stimulate mid-term savings by offering “government bonuses” similar to how tax relief is used to encourage pension contributions, but you can either encash the plan early (with a qualifying lifetime event) e.g. for a deposit towards a house purchase price up to £450,000 or you can keep your savings for other life events such as retirement.  Another lifetime event is reaching the age of 60, where you can withdraw all your savings tax free.

There are penalties, i.e. the withdrawal of the government bonus if you encash your LISA early but not as a result qualifying lifetime event.

Comment

There is much debate about the pros and cons of the Lifetime ISA or Help to Save Account.  Some argue that it will mean people below the age of 40 will be encouraged to divert savings away from pension schemes into more accessible LISAs.  Others suggest encouraging people to save with a bonus will create good savings habits.

We actually sit in the middle on this.  We always look for an ulterior motive with any government plan.  In this case, we believe, whilst government rhetoric is about helping your people onto the property ladder and encouraging savings, it is also about driving property values up.  Why?

• Margaret Thatcher technically offered a similar incentive back in the 1980’s with tax relief on mortgage interest payments. Property prices more than doubled in the 1980s.
• The government will benefit from increased stamp duty revenues as prices rise.
• The government will benefit from increased profits from their shared ownership schemes with Help to Buy schemes as prices rise.
• The government will benefit from increased inheritance tax estate duty revenues as prices rise and the values of estate rise.
• Local governments will benefit from council tax revenues as prices rise.

Property inflation makes the country feel wealthier and happier.