Freelancers' Questions: What's a Lifetime ISA?

Freelancer’s Question: How will the new ISA, which Budget 2016 hailed as helpful for the self-employed, likely operate?

Expert’s Answer: As you seem to know, last Wednesday’s Budget introduced a simple alternative savings arrangement called a Lifetime ISA.

This new ISA will be available from April next year. It will offer savers under the age of 40 the ability to save £4,000 per year with a government top-up of £1 for every £4 deposited by the saver, effectively ‘grossing up’ the contributions for basic rate tax payers and offering many freelance workers a more flexible aside to pensions.

Full details of the new ISA will be announced following a consultation. But for now, it’s expected that the slickly-named LISA will offer penalty free withdrawals. This is due to be the case not only at retirement, but also if the funds are used to purchase a home. If that’s your plan, consider that you can extract your capital tax-free to buy a starter-house up to a value of £450,000 (conditions apply).

The key for the chancellor and his staff during the promised consultation on LISA will be in communicating this new financial product to his potential buyers (us) and keeping it simple, so we all know what we’re getting and how it works. Already though, initial calculations suggest that, in theory, LISA holders could pocket up to £32,000 from the government, assuming the maximum £128,000 is paid in over 32 years.

For now though, you might want to consider the conventional ISA, as in Budget 2016 these existing accounts received a bigger than expected boost, with an increase in the annual limit from £15,240 to £20,000 from next year. So freelancers are being offered even more scope to save in a tax-smart manner.

The expert was Sat Singh, chief executive of ContractorMoney, an IFA specialising in freelancers’ financial matters.


21st March 2016

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