What’s a Lifetime ISA?
What's a Lifetime ISA?
A Lifetime ISA – also called a 'LISA' – is designed to help you save for your first home or later life (or both if you like). It's a government scheme that tops up your savings by 25%.
You can hold cash or stocks and shares in a Lifetime ISA, or even a combination.
Investments can offer greater returns than savings accounts, but your money is at risk, and there is no guarantee you will get back what you put in. Investments are generally advised as a long term strategy, because it gives you time to ride out dips in the market, having a better chance of getting a positive return.
Are there restrictions on a Lifetime ISA?
You can open a Lifetime ISA if you’re 18 or over, under 40 and a UK resident.
You must make your first deposit before your 41st birthday, and you can continue to add money into your Lifetime ISA until you’re 50. After you turn 50 you can no longer pay into your LISA, but it will continue to earn interest/investment returns.
You can pay up to £4,000 into a Lifetime ISA each year, and the government will top up 25% – that’s £1,000 extra per year if you use your full allowance!
You can have multiple Lifetime ISAs, but unlike other ISA types, you can only pay into one per year.
The intention is you only withdraw your money once you hit 60, or to buy your first home. You can withdraw your money before this if you need to, but it will be subject to a 25% withdrawal charge. The exception to this charge is if you’re terminally ill with less than 12 months to live.
Buying your first home with your Lifetime ISA
In order to use your Lifetime ISA savings to buy your first home, all of these must apply:
the property costs £450,000 or less
you buy the property at least 12 months after you make your first payment into the Lifetime ISA
you use a conveyancer or solicitor to act for you in the purchase, as the ISA provider will pay the funds directly to them
you’re buying with a mortgage
You can’t use your Lifetime ISA savings to buy your first home if you’re borrowing the money to buy from a family member, spouse/civil partner or relative of your spouse/civil partner instead of getting a mortgage. Read more on the restrictions here.
If you also have a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home. You can transfer money from a Help to Buy ISA to a Lifetime ISA, or vice versa. But you’ll have to pay the 25% withdrawal charge if you transfer from a Lifetime ISA to a Help to Buy ISA.
Planning to buy your first home? Connect your mortgage to Monzo to see your monthly progress on what you own, see the impact of overpaying and get insights that could save you thousands.
Can I pool my Lifetime ISA savings if I’m buying with someone else?
Yes! If you’re buying a home with someone else, you can pool your Lifetime ISA savings as long as you are both first-time buyers and meet all of the above criteria.
Saving for later life with your Lifetime ISA
You can withdraw your savings from your Lifetime ISA when you’re 60 or over, and use them for whatever you like.
Just bear in mind that if you withdraw the money or transfer it to a different type of ISA before you're 60, you'll incur a 25% charge.
What happens if you pass away before withdrawing the money?
If you pass away before withdrawing your savings the money can be withdrawn in full with no penalty charge and the money passed on to the beneficiaries.
What if I want to use my Lifetime ISA savings for something else?
You can withdraw your savings from your Lifetime ISA if you’re not buying a home or if you’re under 60, but you'll pay a 25% charge, which may leave you with less than you put in. Here's an example…
You save £4,000 in your Lifetime ISA and the government tops it up by £1,000
This gives you a total of £5,000
If you withdraw this money early and have to pay the charge, you'll lose £1,250
This leaves you with £3,750 – which is £250 less than what you put in
So it's not sensible to get a Lifetime ISA unless you can commit to locking it away for your first home, or retirement.
Lifetime ISAs aren't designed to be a replacement for pensions. Pensions offer many benefits that Lifetime ISAs don’t, such as employer contributions for workplace pensions. It’s a good idea to do your research or consider speaking to a registered financial adviser to make a plan for your retirement savings.
Does the Lifetime ISA limit of £4,000 count towards your ISA annual allowance?
Yes, if you invest the full £4,000 per year into your Lifetime ISA, you’ll have £16,000 remaining of your annual ISA allowance.
This isn't financial advice or personalised to you, and we're not recommending or suggesting you take any particular action. If you're in any doubt about what's right for you, then speak to an authorised financial advisor.
Tax treatment depends on individual circumstances and may change in the future.
The value of your investment can go up and down and you could get back less than you put in.
Unfortunately we don’t offer Lifetime ISAs yet, but find out more about the saving and investing options we do offer.