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Lifetime ISA: what is it and should I open one?

Nikos Melachrinos
December 3, 2021
Lifetime ISA: what is it and should I open one?

The Lifetime ISA summary

The TL;DR on the Lifetime ISA (aka LISA):

  1. You can deposit up to £4,000 a year
  2. You receive a 25% bonus from the government on what you’ve deposited. That’s a maximum bonus of £1,000 each year. 
  3.  You must be 18 or over but under 40
  4. You can deposit into the LISA up until you turn 50. 
  5. You can't withdraw the money in your LISA without fees unless it's to buy your first home (maximum house value of £450,000), or when you’re 60 years old or over,. 
  6. Important: If you withdraw the money early or not for your first home, you will be charged a 25% fee which means losing the bonus and 6.25% of your deposit.
  7. The only exception is if you have a terminal illness
  8. You and your partner can both have LISAs and use them towards buying a house together.
  9. If you already have a Help to Buy ISA you can transfer the funds into a LISA.

What is a Lifetime ISA and should I get one?

Individual Savings Accounts (ISAs) are a tax-free type of savings or investing account that the UK government has created for people to increase their money.

You can read about all the different types of ISAs in our ISA guide, but this post is on the Lifetime ISA or rather, the LISA. 

The LISA is an account that pays out a 25% bonus on whatever you deposit in it. Yes, that’s right, free money from the government. It’s an account available to open for anyone under 40 years old and it’s created to serve 2 purposes - help you buy your first home OR to help you create a pot of money for your retirement.

How much can I deposit into a LISA?

The limit is £4,000 per tax year (which means you can receive up to £1,000 from the bonus) and you can only deposit into a LISA until you reach 50 years old. If you started at 18 and were maxing out a LISA, you would be saving a maximum of £128,000 and earning a government bonus of £32,000, for a grand total of £160,000.

What can I use the LISA for?

The restrictions for the money deposited on the LISA is that you can only withdraw the money from the account when:

  1. Buying your first home that costs under £450,000 and you intend to live in it
  2. You turn 60 years old

Withdrawing the money for any other reason will mean you get a 25% fee on the withdrawal. This is not equal to the bonus you have received. It means returning the bonus plus an additional 6.25% fee. The only exception would be if you were facing a terminal illness and you can withdraw the money with no fees.

Where can I open a LISA account?

Thought you’d never ask - check out our guide on the best LISA providers in the UK.

Are LISAs a cash account only?

No! You can either have a cash LISA or a Stocks & Shares LISA. Not all providers give you the option to do both so check out our best providers in the UK guide. Since LISAs tend to be a long term account, it is a good idea to consider the Stock & Shares option since cash sitting in an account for many years will lose value due to inflation. If you’re debating this, you should read our “Why you need to start investing now” post. 

Can I have a Help to Buy ISA and a LISA at the same time?

The help to buy ISA is a similar type of account that comes with a 25% bonus, however its not available for new registrations. If you already have the help to buy ISA, then you can have a LISA in addition, however, you won’t be able to use the 25% bonus from both accounts towards buying your first property. Therefore you can either keep both and use the LISA towards your retirement OR you can transfer your help to buy ISA into an LISA since it has higher deposit limits so you can get a higher bonus towards buying a home. 

Illustration by Dragan Sukurma.

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