That’s LISA with a P!

Image of a calculator, pen and graph, used by someone for financial planning.

Leading up to the Budget there were endless articles, commentary and sometimes heated debate over the Chancellor’s intentions with regard to pensions and in particular tax relief. On the day though, there was hardly a mention of the ‘P’ word other than some much needed amendments to badly drafted sections of the last Pensions Act.

One of the key announcements though, was the new Lifetime ISA or LISA. Under the proposals anyone under age 40 can save up to £4,000 per annum into the account and each year will receive a bonus of 25% from the government. The bonus though will only be available until age 50 and will be lost if the funds are not used by the saver either to the purchase their first home or retained until age 60. In addition a 5% penalty would apply.

My initial calculations indicate that on a like for like basis, basic rate taxpayers may be better off using the new account rather than a pension under the existing rules. For higher rate taxpayers it will be dependent on their tax position in retirement.

Whilst the government has steered clear of calling it a pension, it is remarkably similar to the pension ISA (P-ISA) postulated last year. Many commentators are concerned this is essentially a thinly disguised step towards the removal of higher rate tax relief.

Whether it is a good idea or not, or just complicates an already complex pension universe, only time will tell. Those who are eligible for higher rate tax relief on their pensions, may want to take notice and consider maximising their pension contributions.

The other major change was the surprising and significant reduction in capital gains tax rates. The reduction to 10% and 20% (currently 18% and 28%) will come into effect from the 6th of April 2016. Buy-to-let landlords though will not benefit from the Chancellor’s generosity, and will continue to be subject to the existing rates.

So not the most exciting of budgets, given the pre-budget headlines, but certainly some points to consider.

If you would like to discuss your planning requirements with one of our team of Chartered advisers please contact Cave & Sons for a no–obligation initial discussion on 01604 621421 or email

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This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at (18/03/2016). You are recommended to seek competent professional advice before taking any action.

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