The Savings (Government Contributions) Bill was published yesterday. The Treasury’s Explanatory Notes - documents prepared by the Government to explain the purpose of the Bill – showed the new ISA is on course for April 2017.
The Lifetime ISA was announced in the March Budget as a new form of ISA which would allow individuals to save for a first home or for retirement.
Baroness Ros Altmann, who quit as Pensions Minister earlier this year, has called for it to be scrapped.
The publication of the Bill this week provides more information on how the LISA will operate but full details will not be published until the Bill reaches Committee stage in Parliament.
Steven Cameron Pensions Director at Aegon said: “The publication of this Bill confirms that the Government is sticking with its timetable of allowing Lifetime ISAs from next April. It also firms up on Government intentions for various aspects of the product design, including the 25% Government bonus on contributions up to £4,000 each year but full details have not yet been provided, meaning an April launch remains highly challenging.”
Like ISAs, contributions will be paid from after tax pay but the LISA will also attract a Government bonus of 25% equivalent to the tax relief on pension contributions for those paying basic rate tax.
Proceeds can be taken tax free to purchase a first home of up to £450,000, after age 60, if terminally ill or on death. However, the Government bonus including interest or growth plus an additional penalty of 5% is deducted if money is withdrawn in any other circumstances.
Mr Cameron said: “Under the LISA, an individual will be able to make withdrawals tax free from a minimum age (intended to be 60), on purchasing a first home, if terminally ill or on death.
“While the Government was considering extending the list of ‘tax free’ events, the Bill suggests it will initially stick with the core list, while leaving the door open to adding other circumstances at some later stage.”
He said: “The Government was also known to be considering allowing individuals to borrow from their LISA, without losing the Government bonus if repaid within certain rules. This seems to have been dropped.”