Martin Lewis urgently warns you ‘should be thinking’ about your ISA now as deadlines loom

Martin Lewis warns of deadline for penalty-free LISA withdrawal

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Martin Lewis covered ISAs in today’s Radio 5 Live appearance as the Money Saving Expert was questioned on what should be done ahead of the tax year ending. Martin pushed savers to open lifetime accounts and he began by breaking down the basics: “So a Lifetime ISA, a LISA, is a tax free savings vehicle that you can open when you’re aged between 18 and 40.

“Now, it’s designed to be used for one of two things.

“Primarily, and the one I would suggest it’s definitely best for, is for first time buyers saving towards a house.

“For every pound you put in there, you get a 25P bonus, you can save a maximum of £4,000 a year in it and if you did that, you’d get a bonus of £1,000, that can be used towards your first property.

“It can also be used towards retirement at the age of 60 but for most people a pension is better.”

Martin continued: “You can use it on any property valued up to £450,000 pounds, so that’s the cutoff.

“You can have one, even if your partner’s bought a house before as long as you’ve never owned a property in any way, shape, size or form this works.”

LISA rules were altered in 2020 in response to the pandemic and Martin went on to cover this, noting there were three key reasons why taking action now would be “pertinent”.

The first being that the bonuses available can only be generated within a tax year, with the current one ending on April 5.

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The second element concerned the Government’s changes: “Normally, you get a 25 percent bonus paid on money you put in, but if you take the money out for anything other than buying the qualifying house or retirement, there is a 25 percent penalty.

“Now, effectively what that means is you lose just over six percent of your money.

“Due to COVID, this year to enable people to take money out of a LISA if they needed it, that penalty [was removed] so if you want to take money out this year, there’s no penalty to pay and you get back roughly what you put in plus any interest you earned.

“You have until April 5, if you need to withdraw money from your LISA to do it penalty free, so if that’s something you may need to do, you should be thinking about that now.”

Martin concluded with the third point to note which highlighted that bonuses from LISAs can only be received by an account that has been opened for at least a year.

As such, Martin urged savers to set up a LISA if they haven’t already, even if they do not see themselves needing it for some time.

For the coming tax year, up to £20,000 can be invested across the four main types of ISA.

This includes cash, stocks and shares, innovative finance and Lifetime ISAs.

ISAs of all kinds can be opened with any of the following types of organisations:

  • Banks
  • Building societies
  • Credit unions
  • Friendly societies
  • Stock brokers
  • Peer-to-peer lending services
  • Crowdfunding companies
  • Other financial institutions

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