Lifetime ISA Explained: Save for Your First Home or Retirement
The Lifetime ISA (LISA) helps you save for your first home or for retirement with a government bonus. You can receive up to £1,000 per year by contributing £4,000, but there are strict withdrawal rules that you need to understand before you open one.
New to ISAs? Start with our intro to ISAs first.
LISA at a Glance
| Feature | Details |
|---|---|
| Eligibility | UK residents aged 18 to 39 |
| Annual contribution limit | £4,000 (counts toward your £20,000 overall ISA allowance) |
| Government bonus | 25% on contributions, paid monthly (up to £1,000 per year) |
| Contribution window | You can pay in until age 50 |
| Types available | Cash LISA and Stocks and Shares LISA |
| Penalty on other withdrawals | 25% of the amount withdrawn |
How the Lifetime ISA Works
- You can open a LISA between ages 18 and 39.
- Pay in up to £4,000 per tax year and receive a 25% bonus on those contributions.
- You can contribute up to age 50, and bonuses stop after that point.
- Choose a Cash LISA for savings, or a Stocks and Shares LISA for investing.
When You Can Withdraw Without a Penalty
- Buying your first home up to £450,000, using a solicitor or conveyancer, and the account must have been open at least 12 months.
- From age 60 for any purpose.
- If you are terminally ill as defined by the provider’s rules.
The 25% Withdrawal Charge Explained
Withdrawing for any other reason triggers a 25% charge on the amount you take out. This takes back the bonus and a bit more.
| Example | Amount |
|---|---|
| You contribute | £800 |
| Government bonus added | £200 |
| Total in LISA | £1,000 |
| Early withdrawal (not for home or age 60+) | 25% charge on £1,000 = £250 |
| You receive | £750 (so you lose £50 of your own money) |
Buying Your First Home with a LISA
- Property price must be £450,000 or less.
- You must be a first time buyer.
- The LISA must be open for at least 12 months before completion.
- You must use a solicitor or conveyancer who will request the funds from the provider.
If buying with a partner who is also a first time buyer, you can both use your LISAs on the same purchase.
LISA vs Pension for Retirement
- A LISA allows tax-free withdrawals from age 60.
- Unlike a workplace pension, a LISA has no employer contributions.
- For many employed people, maxing pension employer match first is usually better value, then add a LISA if you will not need the funds before age 60.
Should You Open a Lifetime ISA?
A LISA can be a smart choice if:
- You are saving for a first home in the next 5 to 10 years and meet the £450,000 cap.
- You want an additional tax free pot for retirement and you are comfortable not accessing it before age 60.
- You are under 40 and want to make use of the 25% bonus each year.
If there is a chance you will need the money for other reasons, consider whether a standard Cash ISA or Stocks and Shares ISA might be safer to avoid the withdrawal charge. You can also take our quick ISA quiz for a personalised steer.
Frequently Asked Questions
Can I open more than one LISA?
You can open multiple LISAs over your lifetime, but you can only pay into one LISA per tax year. Transfers are allowed between providers using the formal transfer process.
Does a LISA count toward the £20,000 ISA allowance?
Yes. The £4,000 LISA limit is a subset of your overall £20,000 ISA limit. For example, if you pay £4,000 into a LISA, you can still pay up to £16,000 into other ISAs in the same year.
What if I buy a home over £450,000?
You can still withdraw your LISA, but the 25% charge will apply if the purchase exceeds the cap or does not meet the other first time buyer rules.
Can I switch between Cash and Stocks and Shares LISA?
Yes, you can transfer between Cash and Stocks and Shares LISAs. Always use the provider’s transfer process to keep your tax benefits and avoid withdrawal charges.
What happens at age 50 and 60?
You can contribute and receive bonuses until age 50. After that you cannot contribute, but the account stays invested or saved. From age 60 you can withdraw funds tax free for any purpose.