Lifetime ISAs are growing in popularity

Danny Cox, chartered financial planner at Hargreaves Lansdown, considers the reasons why people under the age of 40 should invest in a Lifetime ISA (LISA).

Lifetime ISAs are growing in popularity

Lifetime ISA isn’t all about buying property, but it is a dominant driver. Investing for the future is also popular. Judging by the numbers taking out a LISA in their 39th year, clearly people see the advantage of securing their account while they are still eligible.

First time buyers saving for their first home who aren’t planning to buy in the next 12 months would be bonkers not to take advantage of the government bonus offered by LISA. For those trying to get onto the housing ladder for the first time, Lifetime ISA sits at the top of the shopping list.

However it’s important to choose the right Lifetime ISA. With cash interest rates at rock bottom and below the rate of inflation, those who don’t plan to buy property within the next 5 years should consider a stocks and shares Lifetime ISA rather than cash. The stock market provides greater potential to beat the returns on cash and inflation, and while active managers lead the way in terms of where LISA investors are putting their money, a passive tracker is a simple and cheap way to start for first time investors.

Reasons to use a Lifetime ISA

  • First time buyers saving for their first home who aren’t planning to buy in the next 12 months
  • Help to Buy (HTB) ISA savers who can transfer to a lifetime ISA in 2017/18 without the value counting toward their LISA subscription. HTB is a cash ISA whereas LISA can be cash or stocks and shares, which are much more suited to longer-term investors
  • Non-earners saving for retirement after 60 benefit from the government bonus, tax free growth and no tax when cashed in
  • The Self-employed who are basic rate taxpayers could consider using a LISA than a pension for retirement on the first £4,000 of savings
  • Savers and investors with maturing Junior ISAs can transfer up to £4,000 into Lifetime ISA and benefit from the 25% bonus
  • Pension savers likely to be caught by the lifetime allowance pension cap could use LISA to supplement their pension savings, since these are not subject to any caps on value
  • Higher rate taxpayers who have already hit their annual pension contribution allowance could use LISA to supplement their other pension savings
  • Basic rate taxpaying employees who have maximised the employer contribution to their workplace pension could consider LISA as a retirement top up
  • Parents and grandparents making gifts to their children can see their legacy boosted by 25% when subscribed to a Lifetime ISA.

Top 10 Hargreaves Lansdown lifetime ISA fund picks (alphabetical order)

CF Lindsell Train UK Equity

CF Woodford Equity Income

CF Woodford Income Focus

Fundsmith Equity

Jupiter India

Legal & General International Index Trust

Legal & General US Index

Lindsell Train Global Equity

Pyrford Global Total Return

Stewart Investors Asia Pacific Leaders


Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest and tax policies may change.


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