Martin Lewis: Lifetime ISA launches TODAY and £1 could give you up to £32,000 FREE cash

He explained the new accounts are particularly beneficial for those under 40 who have yet to buy a home.

He said: “The official tax-free Lifetime ISA launch back in April was a damp squib – with very few providers offering it –  and all of them were stocks & shares Lifetime ISAs, unsuitable for many looking to buy their first time home relatively soon.  Yet now things have changed.”

Martin spoke to Phil and Holly to explain exactly what a Lifetime ISA actually is.

The ISA is a tax-free savings product that allows savers to put up to £4000 a year in it. Martin had five pointers to share.

He said: “One – you get a 25 per cent bonus on everything you put in. For every pound you contribute in a year, the state will add 25 per cent, until you’re 50. So, if you save £1,000 you’ll have £1,250, and if you save the full £4,000, you’ll have £5,000.

“Two – it’s for first-time buyers, as long as you’ve never owned or part owned a home (in any way) you can use the money as a deposit towards any residential property that costs up to £450,000.

“Three – It is also for retirement savings. The money and bonus can be taken out once you hit 60.

“Four – there’ll be a penalty if you withdraw cash for anything else. You can withdraw the money for anything else whenever you want, but after April 2018, withdrawals have a 25 per cent penalty (remember you’ve already been given a 25 per cent bonus).

“The maths works out that for every £100 you put in, you get £94 back, so only put in money you know you’ll use for home buying or retirement.

“Five – you must be aged between 18 and 40 to open it. If you’ve had your 40th birthday already, you’ve missed out, but open it before you’re 40 and you can keep it after.

“The bonuses are then paid until you’re 50. So open at 18 and get the full 32 years of the maximum bonus and that’s £32,000 free (assuming the rules don’t change).”

Not every provider is offering the Lifetime ISA, and in fact only Skipton Building Society has a savings Lifetime ISA (rather than a stocks and shares Lifetime ISA).

Martin explained why he is so passionate about the Lifetime ISA and opening it now, and said: “Lifetime ISAs are a no-brainer for first-time buyers. Yet there’s a rule that says to use the bonus for a home, you need to have had it open for at least a year (if you’re buying more quickly or are over 40 check out Help to Buy ISAs which are similar though you can put less in).

“Of course if you’ve cash to save then fill your boots, but even if not, putting £1 in there now gets the clock ticking on that year, so that if and when you do have money to put in it, and want to buy a house quickly, you’re ready to go.

However, Martin advised a pension is still better for most people as a retirement savings plan.

He said: “While unlike pensions it does allow early withdrawals (for a penalty) in most cases a pension gives you more  This is because with a pension, you usually save from gross (pre-tax) income – which for basic-rate taxpayers is a bit like a 25 per cent boost in its own right, the same as a Lifetime ISA. For higher-rate taxpayers it’s like a 66 per cent boost, which smashes the Lifetime ISA.”

“Plus, if you’re employed, the auto-enrolment scheme means that if you save into your pension then your employer has to as well, which you don’t get from the Lifetime ISA. 

“So in simple terms the only time the Lifetime ISA even matches pensions is for basic-rate taxpayers who are self-employed.

“Even then, the Lifetime ISA, unlike a pension, counts as savings, so it can diminish your benefit entitlement. Therefore, for most people the Lifetime ISA should only be used at best as a secondary way to save for retirement.”

For more information from Martin on the Lifetime ISA, click here.