Guide to Lifetime ISAs (LISAs)

Get up to £32k savings top up free - from the government

April 2017 saw the launch of the new Lifetime individual savings account (LISA), designed to help first-time buyers save a deposit to buy a property, or those who want to save for retirement, or both.

The LISA is available to anyone aged from 18 up to 40. You can save up to £4,000 into a LISA each year, either into stocks and shares or cash, and the government will boost any contributions you make by 25%. That means for every £4,000 you save, the government will top this up by another £1,000.

Originally the bonus was added at the end of the tax year, but since April 2018 it has been paid on a monthly basis. It is paid until you reach 50 years of age.

So, if you paid the maximum £4,000 a year into your account from the age of 18 up until you reached the age of 50, the government would top up your savings by a total of £32,000.

You can put your savings and the bonus towards a deposit on your first home, provided the property you are buying costs no more than £450,000.

If you want to use your savings for retirement, you’ll be able to withdraw your savings tax-free after your 60th birthday. If you take your money out before this and don’t use it to buy your first property, you’ll have to repay 25% of the total, equating to the forfeit of the government bonus plus a 5% charge.

You can have one LISA per person, so if you’re buying a home with another first-time buyer, you can each open an account. Like other ISAs, all gains made from your LISA are free from both income and capital gains tax.

How LISAs compare to Help to Buy ISAs

The LISA is different from the Help to Buy ISA, which was launched in December 2015, also to help first-time buyers struggling to save a deposit.

Under Help to Buy ISA rules, first-time buyers aged 16 or over can save up to £1,200 in the first month, and then £200p.m. thereafter, and the government again tops up contributions by 25%. The maximum government bonus is £3,000, which you’d need to save £12,000 to get. The bonus is only available if you’re buying a property costing £250,000 or less outside London, or £450,000 or less if you are buying in the capital.

Help to Buy ISA accounts closed to new savers on 30th November 2019. If you already have an account, you can keep saving into the ISA until 30th November 2029, after which additional contributions will no longer be allowed. You must claim the bonus by 1st December 2030.

If you already have a Help to Buy ISA, you can transfer your savings into a LISA if you want to, or you can save into both types of account. However, if you do this, you’ll only be able to use the bonus from one of these accounts to buy a house.

It’s worth noting that you can withdraw cash from your Help to Buy ISA at any time to buy your first home, although you’ll need to have saved £1,600 before the minimum bonus of £400 could be claimed. However you must have had a Lifetime ISA open for at least a year before you can get any money out.
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