Lifetime stocks and shares ISAS

With a cash Lifetime ISA, you put money into a cash savings account and will earn a set interest rate . This works like any other cash savings account. But because it’s an ISA, the interest earned is tax-free. With an S&S Lifetime ISA, you get the opportunity to invest money in the stock market (also tax-free). You can also benefit from a bonus of 25% up to £1,000 from the government, which is not available on cash ISAs.

While there is the potential for higher returns with an investment LISA, there is risk involved. Investments can go up and down. If the equities market falls, you could lose money. There is almost no risk with a cash LISA, but returns may be lower. With a S&S LISA, the overall amount you get depends on the performance of the underlying assets you choose to invest in.

The 25% government bonus (up to a maximum of £1,000) is paid each tax year until you turn 50. It is paid on a monthly basis. Once you’ve reached 50, you can continue to save, but no further bonus will be paid.

The annual ISA allowance is £20,000 in the current tax year. This means that if you have £4,000 in a Lifetime ISA – either in cash, or in stocks-and-shares – you still have a tax-free ISA allowance of £16,000 to use in other types of ISA.

Your savings are protected in the event your savings or investment provider goes bust – up to £120,000 (per person per banking group) by the Financial Services Compensation Scheme. Don’t confuse this with losing money on your investments within the LISA though. As with all investing their value can go down as well as up.

You can transfer funds from an existing ISA into your Lifetime ISA, as long as the provider allows it – so check with them first. If you are allowed to transfer funds, you can also benefit from the 25% government bonus (up to £1,000) for the new investment. Transferring existing ISAs is not complicated but it’s not a case of just withdrawing your cash and putting it in the new account. Our guide on switching your ISA funds explains more.

How involved you wish to be in picking out where to invest your money is down to personal preference. You can manage it all yourself by choosing a self-select ISA where you decide which investment funds, unit trusts and stocks and shares you put your money in. Alternatively, you can use a platform that makes these decisions for you based on your preferences, such as attitude to risk, for example. You can also turn to professional advisers who will help you make the decision. In general, the more guidance you get for investing, the higher the fees and chargers.

Yes, you can use your Lifetime ISA to buy a home with your partner, even if it isn’t their first property. If they have also invested in a LISA, you can combine the two investments to use as a deposit.

As long as you are aged between 18 and 40 and a UK resident, you are eligible to open a Lifetime ISA and take advantage of the investment options they offer. You can also open more than one Lifetime ISA during your life, but you can only open one every tax year and put money into one every tax year.

You are likely to pay fees with a Lifetime ISA, so these should be factored into your planning. A typical way of charging is as a percentage of the value of the investment fund. For example, if you held an average of £20,000 in a LISA over a year and the provider charged an annual fee of 0.2%, you would pay £40 over the 12 months.

If you’re using your LISA money for retirement, you should plan to only withdraw it once you reach 60. If you need to get the money before you turn 60, or you want to transfer it to a different type of ISA, you will face a 25% charge, wiping out the benefit of the government bonus. There are exceptions where you can take the money out beforehand and retain the bonus, such as if you become terminally ill.

Once your first-time buyer offer has been accepted and you have a timeline for completing the purchase, contact your LISA provider and give them details of how much you want to withdraw and contact details for your conveyancer. You’ll also need to contact your conveyancer and complete a declaration form of your intentions.

When ready, the LISA provider will then transfer the funds to your conveyancer as part of the deposit for the house. Note that if your purchase doesn’t complete within a fixed period of the withdrawal, for example 90 days, you will need to return the money to the Lifetime ISA.

You also will need to have had your Lifetime ISA open for at least 12 months before purchasing your first home to avoid the government withdrawal charge.