Lifetime ISAs

Key takeaways

• Lifetime ISAs (or LISAs) are designed to help you save for your first home or for later life.

• The government adds a 25% bonus to what you pay in. You can contribute up to £4,000 each tax year, meaning you could receive a bonus of up to £1,000 a year.

• You must make your first payment into a LISA before you turn 40. You can then continue paying in until your 50th birthday.

• You can normally withdraw your money without a charge when buying a qualifying first home or once you turn 60. Other withdrawals usually face a 25% government withdrawal charge, which can leave you with less than you originally paid in.

What is a Lifetime ISA?

A Lifetime ISA is not just any savings account; it's a government-backed initiative designed to encourage individuals to save for purchasing their first home or retirement. LISAs are available as stocks and shares ISAs, where you're invested in the stock market, or cash ISAs, where you earn interest on your savings. You can find and open your Lifetime ISA account online and just like standard ISAs, LISAs are subject to an annual ISA allowance.

How do Lifetime ISAs work?

Here are the key things you need to know:

• Government bonus: For every £4 you pay in, the government adds £1. You can contribute up to £4,000 each tax year, giving you a maximum government bonus of £1,000 a year. You can make payments and earn the bonus until your 50th birthday.

• Tax-free growth: Any interest, dividends or capital gains earned within a LISA are tax-free.

• Part of your annual allowance: Contributions to a Lifetime ISA count towards your overall annual ISA allowance, but the government bonus does not.

• Contribution window: You must make your first payment into a LISA before you turn 40. You can then continue paying into it until your 50th birthday. After that, the account can remain open and your savings can continue to earn interest or investment returns, but you cannot make further payments or earn new government bonuses.

• Using your money: You can make a charge-free withdrawal to buy a qualifying first home once at least 12 months have passed since your first LISA payment. You can also withdraw your money without the government withdrawal charge once you turn 60.

• Paying into a LISA: You can hold more than one Lifetime ISA, but you can only pay into one LISA in each tax year.

What can I use a LISA for?  

Buying your first home

A LISA is primarily designed for individuals saving to buy their first home. If you are planning to purchase your first property, there are several factors to consider:

• Property price cap: Your first home must cost £450,000 or less anywhere in the UK

• Living arrangements: You must intend to live in the property; it cannot be used for buy-to-let purposes.  

• Complements a home loan: You can’t use a LISA and its bonus to help buy a first property unless you are taking out a mortgage.

• Joint purchases: If you're buying with another first-time buyer who also has a LISA, you can both use your savings towards the home. However, the property price cap remains unchanged

• Continue saving: If you use the money to pay for a deposit on your first home, you can continue saving into your Lifetime ISA after you've purchased your property. You will still get the government top-up until age 50 even after you’ve bought your first home.

To find out more about buying your first home and the potential costs, take a look at our mortgage calculator.

Retirement 

If you're not using your LISA for a home purchase, it’s best to leave the funds untouched until age 60. At that point, you can withdraw the money for retirement or any other purpose without facing the earlier withdrawal penalties.

What restrictions apply to Lifetime ISAs?

If you withdraw money from a Lifetime ISA before age 60 for a reason other than a qualifying first-home purchase or another permitted exception, you’ll normally pay a 25% government withdrawal charge.

The charge applies to the amount withdrawn, including the government bonus. This means it does more than simply take back the bonus. For example, if you paid in £800 and received a £200 bonus, withdrawing the full £1,000 would result in a £250 charge, leaving you with £750 - £50 less than you originally contributed.

Charge-free exceptions include qualifying first-home purchases, withdrawals from age 60 and withdrawals where you are terminally ill with less than 12 months to live.

How do I choose between cash and stocks and shares LISAs?

When it comes to LISAs, you have two options: cash or stocks and shares. Each type of ISA has its merits, depending on your risk tolerance and financial goals.

Lifetime cash ISAs

Cash LISAs offer a lower-risk alternative to investing. Your money earns interest without income tax to pay, alongside the government's 25% bonus. Interest rates and account terms vary between providers, so it’s worth comparing your options. While you can open some standard cash ISAs from age 16, you must be at least 18 to open a Lifetime ISA.

Lifetime stocks and shares ISAs

As with a cash Lifetime ISA, you can save up to £4,000 tax-free per tax year and benefit from the 25% government bonus. The difference is that rather than putting your money in a cash saving scheme, a stocks and shares Lifetime ISA is an opportunity to invest in stock market assets, also known as equities. While there is a chance for your investment to grow, an equity-linked ISA also comes with risk. It means your stocks and shares could fall in value as well as rise – so you could lose money if the stock market falls.

How much could I save with a LISA?

If you contributed the maximum £4,000 each year for 32 years, you would pay in £128,000 and could receive £32,000 in government bonuses, giving you £160,000 before any interest or investment growth.

The exact amount you can build up will depend on when you open the account, how much you contribute and, for investments, how they perform. You cannot make further LISA contributions once you turn 50.

📣 Did you know? From 6 April 2027, the government plans to introduce a £12,000 annual Cash ISA limit for savers under 65, within the overall £20,000 ISA allowance. Savers aged 65 or over will retain a £20,000 Cash ISA limit. The £4,000 annual Lifetime ISA limit is not changing under these reforms.

The pros and cons of Lifetime ISAs

Advantages

• Government bonus: A 25% top-up on eligible payments can give your savings a significant boost.

• Transfers: You can transfer between LISA providers without triggering the usual withdrawal charge, although provider terms may apply.

• Protection: Eligible cash deposits with a UK-authorised bank, building society or credit union are protected by the FSCS up to £120,000 per eligible person, per authorised firm. Investment protection works differently and eligible claims are generally covered up to £85,000 per person, per firm. FSCS protection does not cover losses caused by investments falling in value.

• Complementary: A LISA can be used alongside other savings and long-term investments such as pensions.

Disadvantages

• Usage restrictions: The LISA is limited to first home purchases or retirement, with penalties for other withdrawals.

• Contribution cap: The annual limit is £4,000, which may not be sufficient for all savers.

• Penalties: A 25% penalty for non-qualified withdrawals can be harsh.

• Age limits: You must make your first LISA payment before you turn 40, and you cannot make further payments or earn new government bonuses once you turn 50.

• Property restrictions: To make a qualifying first-home withdrawal, the property must cost £450,000 or less, you must intend to live in it, and you must be buying with a mortgage.

How do I open a Lifetime ISA?

The simplest way is usually to open an account online. Minimum deposits vary by provider, and you can pay in up to £4,000 each tax year. You’ll normally need to provide proof of your identity and address.

You can find and apply for a Lifetime stocks and shares ISA with MoneySuperMarket. If you plan to use your LISA to buy your first home, at least 12 months must have passed since you made your first payment into the account before you can make a qualifying withdrawal.

Tim Heming
Personal Finance Expert

Our expert says

Lifetime ISAs can be a powerful tool for first-time buyers, offering a 25% government bonus that gives your deposit a meaningful boost.

Over time, this can significantly accelerate your ability to get onto the property ladder. However, it’s important to understand the rules, including contribution limits, property price caps and withdrawal conditions.

Used correctly, a LISA can form a valuable part of a disciplined savings strategy for your first home.

Other useful guides

• What is an ISA, and how do they work?

• Stocks and Shares ISA guide

• Cash ISAs explained

• Help to Buy ISA guide

Compare Lifetime ISAs with MoneySuperMarket 

If you’re looking for the best stocks and shares Lifetime ISA, you can view accounts from our panel of providers. We’ll show you the key details upfront to help you make your decision, including fees and charges and whether you can transfer from other ISAs.

Your capital is at risk, please be aware that with a stocks and shares ISA the value of your investment can go down as well as up and you may get back less than you invest. ISA and tax rules apply.