How Do Shifts in the Savings Landscape Affect Financial Planning?
Government incentives to save money, such as ISAs, are immensely valuable and should be a key feature in your personal financial management processes. Understanding and knowing the best incentives to use for you and your personal situations is key to ensuring you are making the most out of your finances. Recent changes to the savings landscape, however, have opened up new opportunities while closing down some old ones.
The withdrawal of the Help to Buy ISA in December 2019 now means that the Lifetime ISA (LISA) is the only tax-incentivised savings plan for first-time buyers. However, anyone who had already taken advantage of the Help to Buy ISA during the four years it was available can continue to contribute to it until November 2029.
In order to open a LISA, you must be between the ages of 18 and 40. If you qualify, you can invest up to £4,000 a year, which grows free of tax. Not only this, but those with a LISA can also benefit from a 25% government bonus. This is added to the contributions, so for every £4,000 invested, the government will add another £1,000. Once you turn 50, however, you will no longer be able to pay into the LISA or earn the 25% bonus.
Beware of Penalties
The 25% bonus is a major advantage of LISAs when compared to the previous Help to Buy ISAs, as with Help to Buy ISAs, the bonus was capped at £3,000.
Unfortunately, if you withdraw from your LISA before you turn 60, or if you are not using the funds to buy your first home, you will occur a 25% charge of the withdrawal amount. This charge recovers the government bonus and applies an extra charge to the original savings. This can make it difficult for savers as you may actually end up with less than you paid in if you need early access to the cash in the account.
Child Trust Funds Mature
As well as this, the first Child Trust Fund (CTF) accounts reach maturity in September of this year. After being launched in 2005, CTF accounts include a contribution from the government for children born between the 1st September 2002 and the 3rd January 2011.
New regulations ensure that freedom from the UK income tax and capital gains tax will continue once the Child Trust Fund has matured, even if no action is taken by the account holder.
Both the maturity of CTFs and the complex LISA rules serve as reminders that financial advice is important for personal financial planning. B Levels, bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances meaning the expert advice from an experienced financial adviser is imperative.
KLO Financial Services
If you would like to find out more about how the savings landscape changes will affect your finances, speak to one of our experienced financial advisers by calling 01926 492406 or email enquiries@klofinancialservices.com.