gangzoom Posted March 16, 2016 Share Posted March 16, 2016 (edited) So from next April George Osborne is going to give any one under the age of 40 £1000 for £4000 saved into a Life Time ISA. The tax man will than keep on giving you £1000 every year for every additional £4000 saved till your 50, and than once you reach 60 you can take whole lot out tax free?? That's 25% interest backed by the government... I assume the 10 year period between when your 50 - 60 your still get basic rate interest. So if I open one of these ISA next year (aged 35), I'll get 25% interest on my savings for 15 years, and than base rate interest, all at no risk.... Where's the catch?? https://www.gov.uk/g...A_explained.pdf Edited March 16, 2016 by gangzoom Quote Link to comment Share on other sites More sharing options...
Ekona Posted March 17, 2016 Share Posted March 17, 2016 Kinda what I was thinking. I need to have a bit more of a look into this today, but in theory it seems a no brainer. However, you just know that the reason it exists is so that they can do away with the state pension at some point. 1 Quote Link to comment Share on other sites More sharing options...
Ponsonby Posted March 17, 2016 Share Posted March 17, 2016 The money you put in will have already been taxed, so what they are really doing is giving you back the tax you have paid - similar to paying into pensions. I guess that anyone that is able to save £4K a year will be paying at least the basic rate of tax. The annoying thing with these schemes is that although they probably cannot take back what they have given you, future governments can stop or change the schemes. It would be better if they were properly 'set in stone' so you young un's could plan your futures better. Some of us are too old for these schemes but I take an interest for my kids sake. Quote Link to comment Share on other sites More sharing options...
350 Russ Posted March 17, 2016 Share Posted March 17, 2016 Kinda what I was thinking. I need to have a bit more of a look into this today, but in theory it seems a no brainer. However, you just know that the reason it exists is so that they can do away with the state pension at some point. That's exactly what I was thinking. This is leading up to that imo Quote Link to comment Share on other sites More sharing options...
Flex Posted March 17, 2016 Share Posted March 17, 2016 It's essentially the same as tax relief you get on a pension so just another pensions vehicle. Although at least you wont be risking your funds in an ISA just the opportunity cost of investing elsewhere. Quote Link to comment Share on other sites More sharing options...
Mikevv Posted March 18, 2016 Share Posted March 18, 2016 I guess that anyone that is able to save £4K a year will be paying at least the basic rate of tax. Not entirely true, but I get what you mean Just for arguments sake, someone on minimum wage of £6.50 will earn roughly same as someone on around £8-8.50 an hour due to taxes. It's great for the kids coming out of school, but annoying for those who got training and extra skills etc and worked up from minimum wage, to essentially still be on the same monthly take home. Saving roughly one weeks wages a month shouldn't be too hard? I mean obviously depends on financial commitments like rent and other stuff :S On a side note, would people rather "invest" in this, or just keep the cash in your account/invest in other markets? Quote Link to comment Share on other sites More sharing options...
gangzoom Posted March 18, 2016 Author Share Posted March 18, 2016 (edited) I did some numbers. Based on my personal circumstances (aged 35 in 2017), assuming 2% interest rates for the next 25 years (wild guess), £4000 deposit each year for 15 years + £1000 "bonus" 15 years. At the end of 25 years the lump sum pay out would be £107,511. £4000 paid in each year for 15 years without a £1000 bonus at 2% interest will end with a lump sum of £86,008 at 25 years. So the Life Time ISA will pay out £21,502 more than a normal ISA at the end of 25 years assuming interest rates are equivalent. The big unknown is if you will allowed to move the ISA between different providers to take advantage of bonus rate etc. I wouldn't see this as an 'investment' as such, more a retirement product that will give you about 1% more APR than any equivalent 'risk free' product with payout aged 60. Or a way to save for your first house, ideally if you use the money just after your 50th birthday it will get the best overall APR, since that's when the £1000 a year bonus ends. But if you have spare cash now, the Santander 1-2-3 account is still the best choice. 3% APR is currently unbeatable, especially now the tax on savings is only applied after the first £1000/500 of interest depending on your income. We've got three accounts between us, as of next month they will be returning £120/month after the £5/month fee. If your willing to take a risk on other products am sure there are other investments that will beat these numbers. It's all down to how much risk you want to take with your hard earned ££. Edited March 18, 2016 by gangzoom Quote Link to comment Share on other sites More sharing options...
TomBorehamUK Posted March 18, 2016 Share Posted March 18, 2016 I guess that anyone that is able to save £4K a year will be paying at least the basic rate of tax. Just for arguments sake, someone on minimum wage of £6.50 will earn roughly same as someone on around £8-8.50 an hour due to taxes. Well not exactly, working 40 hours a week at £6.50 will total £12200 after tax. 40 hours per week at £8.50 will total roughly £15200 after tax Not the hugest of differences but the difference is almost enough for the requirements of the ISA. Quote Link to comment Share on other sites More sharing options...
mouthwash Posted March 18, 2016 Share Posted March 18, 2016 I guess that anyone that is able to save £4K a year will be paying at least the basic rate of tax. Not entirely true, but I get what you mean Just for arguments sake, someone on minimum wage of £6.50 will earn roughly same as someone on around £8-8.50 an hour due to taxes. You do know how tax works... Right? 1 Quote Link to comment Share on other sites More sharing options...
Mikevv Posted March 18, 2016 Share Posted March 18, 2016 (edited) I guess that anyone that is able to save £4K a year will be paying at least the basic rate of tax. Just for arguments sake, someone on minimum wage of £6.50 will earn roughly same as someone on around £8-8.50 an hour due to taxes. Well not exactly, working 40 hours a week at £6.50 will total £12200 after tax. 40 hours per week at £8.50 will total roughly £15200 after tax Not the hugest of differences but the difference is almost enough for the requirements of the ISA. Looking at it, £6.50 and £7.50 seem to be same ?? am I working things out wrong here? Edited March 18, 2016 by Mikevv Quote Link to comment Share on other sites More sharing options...
TomBorehamUK Posted March 18, 2016 Share Posted March 18, 2016 Well your friends are selling drugs on the side , they're working more hours than you or you're on the wrong tax code. £6.50 an hour isn't tax free, your first £11000 in earnings P/A is tax free this is your personal allowance, so if someone was only to work about 30 hours per week then they wouldn't be taxed, do 50 at the same rate then they would be. Quote Link to comment Share on other sites More sharing options...
Mikevv Posted March 18, 2016 Share Posted March 18, 2016 I think I've got my numbers severely wrong here! Maybe I should call it a day - Been awake for 18 hours and the sun is confusing my brain, not used to seeing it Quote Link to comment Share on other sites More sharing options...
Ekona Posted March 18, 2016 Share Posted March 18, 2016 You're only taxed over the personal allowance. So if you earn £11K you pay no tax, if you earn £12K then you pay tax only on the extra £1K. 1 Quote Link to comment Share on other sites More sharing options...
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