NatWest Lifetime ISA (A review)
In this brief blog, we are going to talk about the Natwest Lifetime ISA.
Does NatWest do Lifetime ISA?
NO. Natwest does not offer the Natwest Lifetime ISA.
Why doesn’t Natwest have a Lifetime ISA?
It has been said that a lot of big banks who would have typically or already provide ISA products didn’t want to provide the Lifetime ISA due to the huge withdrawal penalty which the Government placed on investors who weren’t using the money for buying a home as a qualified first-time buyers or people who withdrew the money before the age of 60.
This means that someone who needed the returns (money) for an emergency could find themselves losing any earnings they might have made on the Lifetime ISA account.
Natwest may offer this product in the future but there is no guarantee of this.
Note: The rest of this guide has been written as if Natwest had a lifetime ISA. Its states the features you would expect to see with a Natwest lifetime ISA. These features are in line with the Uk Government’s framework of the Lifetime ISA.
What is the Natwest Lifetime ISA?
The Natwest Lifetime ISA is a type of ISA which can be used for first-time buyers or retirement savings.
The Lifetime ISA allows you to put a maximum of £4000 away each year and receive a government bonus of up to £1000 a year( 25%).
What you need to know about the Natwest Lifetime ISA
You must be between 18-40 years old & a Uk resident to open a LISA
You can only withdraw your LISA (penalty free) before 60 to buy your first home
Your first home must be below £450,001
You will face a Government penalty of 25% if you withdraw your LISA before 60 and do not use it for a home
You can transfer your current ISA into your LISA and transfer your LISA out but you will have to pay the 25% charge for this if it is done before you are 60.
Interest earned on your LISA as well as the 25% Government bonus is tax-free
Who is eligible to open a Lifetime ISA?
You must be 18-40 years old and a UK resident to open a LISA.
Who qualifies as a first-time buyer?
A first-time buyer is someone who does not own any property in the World. This includes property in a will, trust or as a result of a divorce. The maximum house price you can purchase utilizing the LISA is £450,000.
You can purchase a property with someone else on a LISA but the maximum property price does not double. You can also use the LISA with other First-time buyer schemes such as the Help to Buy equity loan scheme.
Can I open my Natwest Lifetime ISA with other ISAs?
Yes, you can as long as you don’t exceed your current ISA allowance for the tax year which currently stands at £20,000.
You can however not use the bonus for both when purchasing a home. You will have to pick which one you use to buy a new home and any funds withdrawn from the other types of ISA products will incur a withdrawal penalty.
When can I withdraw money from my Natwest Lifetime ISA?
You can withdraw your money before the age of 60 as usual although you will face a Government withdrawal penalty of 25% or you can withdraw it when buying a first home under £450,000 without any penalty.
The property must be a mortgaged property and you can only utilize the LISA 12 months after opening it with your solicitor acting on your behalf to ensure your LISA bonus is activated and LISA account is closed without any penalty. If your property purchase is taking more than 90 days you can contact HMRC for an extension.
If you fail to buy a property you can return all the funds and the interest missed will be paid and it will not be classed as a withdrawal.
You can of course always withdraw your money after age 60 and above with no penalty whatsoever.
When will a withdrawal charge not apply?
A withdrawal charge won’t apply if you’re:
using it towards a first home
terminally ill with less than 12 months to live
transferring to another Natwest Lifetime ISA with a different provider
If you die, your Natwest Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.
How is the Government bonus paid on my Natwest Lifetime ISA?
The Government bonus will be paid monthly from 2018 and this will allow you to earn more interest on the cumulative deposits.
How long can I contribute to the Natwest Lifetime ISA?
Contributions to your LISA end when you turn 50.
*As with all investing, your capital is at risk. Tax rules may change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek independent financial advice. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. Please seek independent financial advice. *
Alternatives to the Natwest lifetime ISA
There are also other government schemes which you may be eligible for to help you get on the property ladder. Some of these schemes may be useful to increase your mortgage deposit whilst some others may simply reduce the cost of the property.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
In this brief guide, we discussed the Natwest Lifetime ISA. If you have any questions or comments please let us know below.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.