MARTIN Lewis issued an urgent savings warning as he advised an easy way to avoid your grandkids missing out on £1,000s in free cash.
The Money Saving Expert shared the tips on his website today which could bag you thousands of pounds.
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Martin urged grandparents across the nation to set up a Lifetime ISA (LISA) for their grandkids which can help them one day buy a home.
“For (grand)parents wanting to help their (grand)kids buy a home, giving them cash to put in a LISA is a great way to do it – though they’ll need to open the LISA account themselves as you can’t do it for them,” he said.
He explained that a LISA lets you save up to £4,000 every tax year towards a first home or retirement, with the state adding a 25 per cent bonus on top of anything saved.
“That means you could get a chunky £1,000 of free cash annually, plus you earn interest on whatever you save, and as it’s an ISA, that interest is tax-free,” he added.
But grandparents looking to set up their kids’ with LISAs must make sure they do it in their grandkids’ name, he warned, as the recipient must be under 40-years-old but over 18.
The LISA also has to have been open for a year to be able to use it towards a first home.
Martin urged grandparents to set up these LISAs as soon as possible as failing to do so could see their grandkids missing out on a whole bunch of perks.
“A Lifetime ISA (LISA) can be opened by anyone aged between 18 and 39. You can use it to save up to £4,000 a year, towards either a first home costing up to £450,000 or for retirement, and the state adds a bonus of up to £1,000 a year on top.
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“If you’re pushing 40, make sure you open one before you hit the cut-off age. You can continue to put money into the LISA until the day before your 50th birthday (once you’re 50 or over you’ll continue to get interest or investment growth/losses but you won’t be able to pay in anymore),” he said.
As the LISA is an ISA – and individual savings account – the interest you make on your savings is tax-free, and the money you put in your LISA will count towards that.
Martin also expressed that you can open and contribute to a cash ISA and a LISA in the same tax year.
“The overall ISA limit is £20,000 in the 2023/24 tax year. You are allowed to split this between a LISA (up to the maximum £4,000) and put the remainder in a cash ISA,” he said.
And if you already have an ISA set up, some providers will even let you transfer money from that into your LISA.
The Money Saving Expert did warn, however, that you will have to pay a penalty if you withdraw the cash and don’t use it for a first home or retirement.
“Under the normal LISA rules, you can take some or all of your cash out of a LISA before age 60 even if you’re not buying a property – but you’re charged 25% of the amount withdrawn, so it’s best to try to only use the LISA if you’re sure the cash is for one of the two defined purposes: buying a first-home costing £450,000 or less, or retirement,” he stated.
Once the LISA is open, you’re not locked in and are free to transfer it to another provider.
“You can hold more than one LISA at any one time, provided that each LISA is opened in a different tax year – though you only pay into one in each tax year (you can transfer the current year’s money around, provided it’s all transferred each time),” he advised.
This comes after Martin Lewis issued a six-month warning to anyone who has recently opened a Cash ISA.
He urged that if you opened one of these accounts more than six months ago, that it likely has a “terrible” rate due to rising interest rates.
The Money Saving Expert also issued an urgent warning over a driving license mistake that could cost you £1,000.
The consumer website explained in its latest newsletter how anyone with an expired license can be fined if pulled over by police.
It said a staggering two million people are driving on licenses that are out of date.
