Lifetime ISAs (LISAs)

Lifetime ISAs (LISAs) are a type of ISA. They are a combined savings product intended both for First Time Buyers to save their deposit and for anybody to save for retirement.

Using a LISA you receive a top up ‘bonus’ to your contributions, to help you build your savings faster. However, if you want to use your LISA savings for anything other than those two purposes, you will be charged a penalty.

How do Lifetime ISAs work?

You can save up to £4,000 in a LISA per tax year. The government will give you a 25% bonus on any contributions, for example:

  • Put £2,000 into the LISA and get a £500 bonus
  • Put the full £4,000 get an extra £1,000

ℹ️ The bonus is paid within two months of your contributions.

LISAs can be either cash (getting paid interest by a bank or building society) or Stocks & Shares (where you aim to make returns on your chosen investments). Both will receive the government bonus.

Like all ISAs the money within it is sheltered from income and capital gains tax. As LISAs are their own type of ISA, you can pay in to a LISA in addition to any of the other types of ISA in the same tax year, but they come within the overall annual contribution limit of £20,000. More info on ISAs.

LISAs can be opened by anyone aged between 18 and 39 (the cut off is the day before your 40th birthday) who is resident in the UK. You cannot pay in to a LISA once you turn 50 (again the cut off is the day before your 50th birthday).

When can I access the money?

You can access your LISA savings (including bonus) when buying a house worth up to £450,000 as a first time buyer. You can also withdraw the funds completely penalty-free from age 60.

You can withdraw money from your LISA at any time. However, if it is not for one of the two reasons listed above, the withdrawal will be subject to a 25% penalty. This works out to losing the whole bonus, and 6.25% of your contributions (and of any interest or growth).

Using a LISA to buy your first home

Your LISA needs to be open for a year before you can use the money. You must be a first time buyer (as per the Help-To-Buy eligibility rules). The house must be in the UK and cannot be worth more than £450,000. You’re not meant to let out a house that was bought using a LISA. It does not need to be a new build.

If you are buying together with a partner and are both first time buyers, then you can both use LISAs (double bonus!). The house still cannot be worth more than £450,000.

If only one of you is a first time buyer, that person can still put money from their LISA towards the purchase.

⚠️ Do not withdraw funds yourself!
Your conveyancer will need to arrange the use of your LISA to ensure you get the bonus – the funds will be paid directly to them.

If you intend to purchase a house within the next five years, a Cash LISA is most likely to be suitable. Money Saving Expert maintain a Best Buys list.

If you think it will be more than five years before you buy, you can consider a S&S LISA to invest your savings. S&S LISAs are offered by Hargreaves Lansdown, Nutmeg, and AJ Bell. Broker fees eat into your gains so it’s important to choose the cheapest provider for your specific situation.

Using a LISA to save for retirement

The idea of a 25% ‘bonus’ can get people more excited to save for retirement than the idea of a ‘pension’ – but in fact, pensions actually offer the same (or better) top-up to your contributions, and have several other advantages over a LISA.

For a detailed list of the pros and cons see ISA vs LISA vs pension.

If you’re using a LISA to save for retirement, you’ll want a S&S LISA. Pensions are invested for a reason – in the long term, cash savings struggle to keep up with inflation, and almost certainly won’t grow enough to keep you flush in retirement decades away.

What if £450,000 isn’t enough?

The limit £450,000 was set when LISAs were first released in 2017, and has not been increased, nor (as of 2024) has there been any announced plans to increase it or remove the penalty for buying an ineligible property.

There are many places in the UK where £450,000 is more than enough for most first-time buyers, but in London and the South East buyers may not be confident they’ll find somewhere they want to buy under the limit, especially looking 5-10 years ahead. It can therefore be difficult to decide whether to use a LISA or not.

If you’re uncertain, here are some things to consider:

  • What are the current prices of properties you would be interested in? Check Rightmove/zoopla.
  • What’s the maximum you could afford on your income and savings? See our page on mortgage borrowing. As a quick illustration, to buy a £450,000 property with a £50,000 deposit and £400,000 mortgage you would generally need an income of about £90,000 (by yourself, or combined with a partner). How does this line up with your expected pay progression?
  • How set are you on the area? If you are unable to afford local properties, do you intend to continue renting indefinitely, or to eventually move somewhere more affordable and buy there? What are property prices like in other areas you might be interested in?

And if that hasn’t resolved your uncertainty, some practical suggestions:

  • Open a LISA with £1 just in case. If you end up buying a LISA-eligible property you can at least get one £1000 bonus, if not more.
  • Don’t use a LISA with a hope/assumption that the price limit will increase by the time you need it.
  • If you do save using the LISA, don’t think of the bonus as part of your savings total until you know if you can use it or not. That way you won’t think of yourself as having e.g. £20k saved then have to adjust down to £15k, instead you’ll consider yourself to have £16k saved and either adjust down to £15k or up to £20k.
  • Don’t let this keep you up at night. You can’t know the future perfectly, and the LISA is unfortunately just poorly designed. Whichever you choose, it is unlikely to make the difference between being able to buy or not.

Martin Lewis, of Money Saving Expert fame, has been campaigning for the government to make changes, as he believes LISAs are now a “dead duck product”. You can read more about this here.

Help to Buy (H2B) ISA – no longer available to new savers

ℹ️ The Help to Buy ISA was replaced by the Lifetime ISA (LISA).
This section has been kept as a reference for those still holding them.

They’re a little bit different from LISAs in the following ways:

  • The H2B ISA counts as a Cash ISA, and unless your H2B provider offers a “split account”, you can’t subscribe to a Cash ISA in the same year you pay into a H2B ISA. LISAs are their own type.
  • You can take the money out whenever you want, but won’t receive the bonus. Unlike LISA, there is no additional penalty.
  • The value of the property is capped at £250,000 outside London and £450,000 inside London.
  • The maximum initial contribution was £1,200 (topped up to £1,500 if rules are met), and must have been made within 28 days of opening.
  • The maximum monthly contribution is £200 (topped up to £250 if rules are met.
  • The maximum government top-up is £3,000 (So total value £15,000 + interest, with £12,000 of contributions).
  • You can transfer a H2B ISA to a LISA and keep the bonus.
  • You will stop being able to contribute to a H2B ISA in November 2029.

How do HTB ISAs and LISAs interact?

You are only able to claim the bonus on one or the other in any given tax-year. You can only use one during a house purchase.