What can you afford? - First time buyer

Guide to Lifetime ISAs

5 min read

Lifetime ISAs might be a good option if you're looking to save and invest to buy your first home in 2024. Find out more below.

  • Abigail Bolton Senior Digital Website and Content Marketing Executive
    Abigail Bolton

    Senior Digital Marketing Executive

    Published January 23rd 2024

young female adult packing up her flat ready to move into her first home

Looking for a tax-free way to save and invest for your first home or later in life? Lifetime ISAs (LISAs) might be a good option, as the government will reward you with a big annual bonus. Find out more on rules, eligibility, and factors you need to consider before opening your account in 2024.

On this page:

What is a Lifetime ISA and how does it work?

A LISA is a tax-efficient way to save money for your first home or for retirement. You can save up to £4,000 annually and benefit from an extra 25% government bonus of up to £1000, depending on your contributions.

How do Lifetime ISAs work?

Here are a few rules and restrictions you need to consider:

  • Each tax year you can invest up to £4,000, until you’re 50

  • You’re paid a 25% monthly bonus from the government of up to £1000 annually

  • Your bonus will be paid monthly

  • You can take out a Lifetime ISA or Stocks and Shares Lifetime ISA, or have a combination of both

  • The amount you pay in is linked to your annual ISA allowance, which is £20,000 for 2022/23

  • Withdrawals are tax-free

Who can open a LISA account?

To be eligible you must:

  • Be 18 or over, but under 40

  • Make your first payment before you’re 40

  • Be a UK resident or Crown servant

Using a Lifetime ISA to buy your first home

You can use your LISA to buy your first home at any time. However, there are a few terms and conditions you need to keep in mind.

  • You need to be a first-time buyer

  • The house you want to buy must cost £450,000 or less and be based in the UK

  • You must purchase the property with a mortgage and at least 12 months after you make your first payment into the Lifetime ISA

  • You must use a conveyancer or solicitor for your home’s purchase, as the ISA provider will pay the funds directly to them

Buying a property with your partner? If you’re first-time buyers you can both benefit from a bonus when buying together, as accounts are considered per person and not per home.

Using a Lifetime ISA for retirement

You can use a Lifetime ISA to save for later in life and fund your retirement, as it enables you to withdraw your savings when you turn 60. If you take out your money before that, you’ll pay a 25% penalty on the withdrawn amount.

You can also take out funds from your LISA without a charge if you’re terminally ill, with less than 12 months to live.

What happens to my Lifetime ISA savings when I die?

If you die, your LISA savings will pass on to your beneficiaries. If you don’t have a will, your spouse or civil partner will take the money, without paying a withdrawal penalty.

Withdrawing money from a Lifetime ISA

There are a few rules you need to keep in mind when withdrawing money from your Lifetime ISA. The only reasons you can withdraw money without a getting a penalty are:

  • Buying a home

  • Retiring

  • Being diagnosed with terminal illness

If you take out money for any other reason the government will deduct their bonus – which is 20% of your savings – and give you a 5% penalty. This means you’ll be charged 25% of the withdrawn amount.

Is it worth having a Lifetime ISA?

A LISA is a good opportunity to save for the future but might not be suitable for everyone. Here are a few factors you need to consider when deciding if it’s the right option for you.

Advantages

  • You can take advantage of the 25% bonus, which is big compared to other investments and will give your money a boost.

  • You can transfer your money from an ISA to a Lifetime ISA, to benefit from the bonus. However, you need to keep in mind the terms and conditions of different ISA providers.

  • You can use the LISA as well as other government-backed property schemes such as Right to Buy and Help to Buy, which could help you get onto the property ladder.

Disadvantages

  • There’s a withdrawal charge if you decide to use your money for reasons other than buying a house or retiring

  • You might be charged an extra fee if you decide to move your funds from one provider to another

  • If you’re a first-time buyer you can’t purchase a buy-to-let

  • Your LISA should be up and running for a year before you can use the money to buy a property that costs less than £450,000

Which banks offer a Lifetime ISA?

You can open and manage a Lifetime ISA with your chosen provider online. You can hold as many LISAs as you’d like, as long as you don’t exceed the £4,000 annual limit. However, before doing so make sure you’ve read and fully understood the terms and conditions.

You’ll need to have the following to hand:

  • Your National Insurance number

  • Your debit card details if you’d like to open your ISA with cash

  • Your bank details if you’d like to set up monthly payments

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