The Lifetime ISA is an account which offers eligible savers the opportunity to deposit up to £4,000 per tax year in it. The government pays 25 percent on the savings, up to £1,000 per tax year.
For example, a person can withdraw money from the account without fee if they’re:
- Buying their first home
- Aged 60 or over
- Terminally ill, with less than 12 months to live.
Otherwise, they would need to pay a withdrawal charge if they took any amount out for any other reason – something which is known as an “unauthorised withdrawal”.
This has previously stood at 25 percent, however temporary changes have been introduced recently during the coronavirus crisis.
Currently, the charge is 20 percent.
It will revert to 25 percent on April 6, 2021.
The new withdrawal charge of 20 percent was announced by HM Treasury on May 1, 2020.
However, the rule change will be backdated to March 6, 2020.
This means that if a person has been charged at the former rate of 25 percent since then, the difference will be paid back into their Lifetime ISA.
“Contact your Lifetime ISA provider if this does not happen,” the Gov.uk website states.
So, does having savings in a Lifetime ISA affect benefits eligibility?
Having savings of a certain amount may affect whether a person is able to claim some benefits payments, and this includes those in a Lifetime ISA.
In the case of Universal Credit for example – a payment which is replacing six legacy benefits – a claimant and their partner must have £16,000 or less in savings between them in order to be eligible.
This means that some who have saved money in a Lifetime ISA or other savings accounts over the years may not be able to claim the payment.
It’s possible to use an independent benefits calculator in order to check what benefits a person could get, and some may choose to use this if they’re not eligible for Universal Credit.
There are a number of these signposted on the Gov.uk website, with these being calculators hosted by Policy in Practice, entitledto and Turn2us.
Users of these tools will need a number of pieces of information, and this includes details about savings, income, outgoings and existing benefits and pensions – as well as council tax bills.