Lifetime ISA - Is it right for you? Read this quick guide

What's Included?

Get up to £32k savings top-up free – from the government

In April 2017, the Lifetime Individual savings account (LISA) was launched. It is aimed at assisting first-time buyers to save a deposit to purchase a property, individuals who wish to save for retirement, or both.

The LISA is open to individuals aged 18 to 40. You can save up to £4,000 annually in stocks and shares or cash, and the government will add a 25% bonus to your contribution. This means that for every £4,000 you save, the government will add £1,000.

Previously, the bonus was given annually after the tax year’s end, but now it is paid monthly from April 2018 until you turn 50. If you deposited a maximum of £4,000 annually into your account from age 18 until turning 50, the government’s total contribution would amount to £32,000.

You can use your savings and the bonus to deposit a first home, but the property cannot cost more than £450,000. If you plan on using your savings for retirement, you can withdraw the money without paying taxes once you turn 60. However, if you withdraw the savings before turning 60 and do not use it towards your first home, you must pay back 25% of the total amount, including the government bonus and an additional 5% charge.

Each person is allowed to have only one LISA. Therefore, you can open separate accounts if you plan to purchase a home with another first-time buyer. Similar to other ISAs, the profits earned from your LISA will not be subject to income or capital gains tax.

How LISAs compare to Help-to-Buy ISAs

The LISA and Help to Buy ISA are two separate things. The Help to Buy ISA was launched in 2015 to assist first-time buyers struggling to save for a deposit. Similarly, the LISA is designed to help first-time buyers, but it differs from the Help to Buy ISA.

If you are a first-time homebuyer 16 or older, you can save up to £1,200 in the first month and £200 per month after that under the Help to Buy ISA rules. The government will add 25% to your contributions as a bonus, up to a maximum bonus of £3,000. To receive the full bonus, you must save £12,000. However, this bonus is only available for properties costing £250,000 or less outside of London or £450,000 or less in London.

Help to Buy ISA accounts have been unavailable for new savers since 30th November 2019. If you already have an account, you can continue to save it until 30th November 2029. However, you cannot make any additional contributions after that date. Additionally, you must claim the bonus by 1st December 2030.

If you currently have a Help to Buy ISA, you can transfer the savings into a LISA. Alternatively, you can choose to save into both types of accounts. But keep in mind that you can only use the bonus from one of these accounts to purchase a house.

Please note that you can withdraw cash anytime for Help to Buy ISA to purchase your first home. However, you must have saved at least £1,600 to be eligible for the minimum bonus of £400. On the other hand, for Lifetime ISA, you cannot withdraw any funds until you have had the account open for a year.

Frequently Asked Questions

1. What is a Lifetime ISA?

A Lifetime ISA (LISA) is a tax-free savings account designed for individuals who want to save for their first home or for retirement. Up to £4,000 can be paid into a LISA each year, with no tax to pay on any interest, capital gains, or dividends earned ³.

2. Who can open a Lifetime ISA?

A Lifetime ISA can be opened by anyone aged between 18 and 39 ⁴.

3. How much can I save in a Lifetime ISA?

You can save up to £4,000 per year in a Lifetime ISA ⁴.

4. What is the government bonus on a Lifetime ISA?

The UK government pays a 25% bonus into your Lifetime ISA each month, based on the amount you have contributed. The maximum bonus you can receive from the government each year is £1,000 ².

5. Can I use my Lifetime ISA to buy a house?

Yes, you can use your Lifetime ISA to buy your first home (up to £450,000) anywhere in the UK, but must have had the account open for at least one year before you withdraw money to do this. The time starts from your first deposit ¹.

6. Can I withdraw money from my Lifetime ISA?

You can withdraw money from your Lifetime ISA at any time but if you withdraw it before you turn 60 and it is not for buying your first home or for retirement, you will have to pay a withdrawal charge of 25% of the amount withdrawn ³.

7. Can I transfer my existing ISA into a Lifetime ISA?

Yes, you can transfer your existing ISA into a Lifetime ISA ⁴.

8. Can I get a mortgage with a Lifetime ISA?

Yes, you can use your Lifetime ISA savings towards buying your first home ¹.

9. What happens if I die before I turn 60?

If you die before you turn 60 and have not used your Lifetime ISA savings to buy your first home or for retirement, the account will be closed and your estate will receive the value of your savings tax-free ³.

10. How do I open a Lifetime ISA?

You can open a Lifetime ISA through most banks and building societies that offer ISAs ⁵.

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