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13 Jul 2018

Lifetime Isa bonuses go missing: are you affected?

Find out what's behind the hold up

It's recently emerged that some savers who have been paying into a lifetime Isa have experienced delays in receiving their 25% government bonus.

This has been put down to a mismatch of information held by providers and HMRC.

While your lifetime Isa provider should let you know if there's a problem, the onus is on you to get your information corrected.

Which? explains what's gone wrong, and what you need to do to get your bonus.

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Why has there been a bonus payment delay?

The delay initially cropped up in April this year, when savers with a lifetime Isa who were due to receive their first government bonus payment - but it's been confirmed that some monthly bonuses have been affected since then as well.

So far, a relatively small amount of savers have encountered problems, with 60 confirmed from Nutmeg, and fewer than 150 people at Skipton Building Society.

A spokesperson from Hargreaves Lansdown referred to it as 'teething problems', most commonly caused by information held by the provider being different to that on HMRC's systems.

This could be caused by human spelling errors, change of names - due to marriage, for instance - that hadn't been updated on both systems, or even the inclusion of a middle name on one system that is missing from the other.

There have also been problems caused by those who have transferred their lifetime Isa between providers.

If the provider you are leaving does not close the account properly, it can look like a saver is trying to claim a bonus for more than one lifetime Isa in the same year, which is not allowed.

What is a lifetime Isa?

Watch our short video to find out how the lifetime Isa works.

What should I do if I haven't received my bonus?

If there has been an issue with your provider applying to HMRC for your bonus, your provider should let you know.

Hargreaves Lansdown, Nutmeg, AJ Bell and Skipton Building Society told us that they receive an alert if a bonus payment fails, and that they would all get in touch with their customers to let them know about the issue and why it has occurred.

Customers using other lifetime Isa providers may also have experienced the problem.

Lifetime Isa providers, however, cannot change the records held by HMRC. This can only be done by the individual themselves by either logging in to their Government Gateway personal tax account.

Alternatively, you can call HMRC on 0300 200 3300.

If you suspect there is a problem with your lifetime Isa bonus, but haven't received communication to inform you of this, check with your account provider first before contacting HMRC.

What about the bonus interest?

Depending on which provider your lifetime Isa is with, you may find that you've lost the growth on your bonus.

Providers such as Skipton, which pays 0.75% AER, as well as the likes of Nutmeg, MoneyBox and Foresters Friendly Society, all automatically pay interest on or reinvest your bonus as soon as it's been received.

So, if you were supposed to have received a bonus in May - which, would have been up to £1,000 if you'd paid the maximum £4,000 into your lifetime Isa during the 2017/18 tax year - you may have lost two months' growth on that money.

Other accounts require specific instructions from you to reinvest your bonus money, but if you'd had the opportunity to do this then you'll likely have lost out on potential growth from them as well.

Editors note: A previous version of this article stated that AJ Bell would be pre-funding bonuses - this was incorrect and has now been removed.

How do lifetime Isa bonuses work?

When you save money into a lifetime Isa, the government will top up your savings by 25%.

You're limited to paying up to £4,000 into a lifetime Isa each tax year, meaning there's a maximum government bonus of £1,000.

For the first year, this bonus was paid annually - meaning that all lifetime Isa holders were due a bonus on the money they'd paid into their account up until 5 April 2018.

From this point, the bonuses have been paid on a monthly basis, based on the money paid in from the 6th of one month to the 5th of the following month.

Lifetime Isa providers have to apply to HMRC for the bonus on behalf of the account holders, which then releases the bonus into the customer's account.

Lifetime Isas can only be opened by people aged between 18-39, and the money saved can be used towards your first home or in retirement when you reach the age of 60.

Withdrawing money for any other purpose will result in a penalty, meaning you'll not only lose the 25% government bonus on the money you withdraw, but also any growth and a small percentage of your own money, too.