A TFSA is a tax-free savings or investment account designed to help people between the ages of 18 and 39 buy their first home or save for retirement. A maximum of £4,000 can be deposited into an Individual Lifetime Savings Account each tax year. The government will then add a 25% bonus to a person’s savings (not including investment interest or investment growth).
However, with the end of the tax year approaching, people only have until April 2022 to get this year’s bonus.
A person can receive this bonus until their 50th birthday.
The 25% bonus is only applicable to a maximum of £1,000 per year.
Individuals must be 18 or older, but under 40, to open an Individual Lifetime Savings Account.
The first payment into a LISA must be made before a person reaches the age of 40.
The £4,000 limit counts towards a person’s LISA annual limit.
The LISA annual limit is £20,000 for the 2021 to 2022 tax year.
It is possible to hold cash, stock or units in a LISA, or have a combination of the three.
DO NOT MISS :
When a person reaches the age of 50, they will not be able to contribute to their LISA.
They will also no longer be eligible for the 25% government bonus.
The account can remain open after a person reaches the age of 50.
Their savings will always earn interest or returns on investment.
Only UK residents can open and continue to contribute to a LISA.
The exception to this is if a person is a Crown official, for example, in the diplomatic service, or if they have a spouse or civil partner who is a Crown official.
A person can withdraw money from their LISA if they are buying their first home or are aged 60 or over.
Other reasons include being terminally ill with less than 12 months to live.
There will be a 25% withdrawal fee if a person withdraws money or assets for any other reason.
This is called an unauthorized withdrawal.
Transferring the Individual Lifetime Savings Account to another type of ISA before a person reaches age 60 also incurs a 25% fee.
A reduced withdrawal fee of 20% was temporarily introduced in March 2020, but ended on April 5, 2021.