Guide to Lifetime ISAs
Lifetime ISAs (LISAs) are tax-efficient long-term savings accounts that come with a government bonus. Read our guide to find out how to choose the best Lifetime ISA for your savings goal
Key takeaways
LISAs are government-backed savings accounts, intended to help you afford your first home or fund retirement
The government will add £1 to your account for every £4 you save into your LISA. With a maximum savings limit of £4,000 per tax year, you could receive a top-up of up to £1,000 per year
The cut-off age for opening a LISA is 40, but you can continue to contribute until you're 50
If you withdraw funds before age 60 for non-qualifying reasons, you will forfeit your government bonus in full
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 save, the government adds £1, up to a maximum of £4,000 per tax year. This means you could receive an annual top-up of £1,000 – free money that can significantly boost your savings. The bonus is added each year and is paid on the contributions you make
upuntil the age of 50. You can continue to save into the account after that, but no further government bonus will be paid.Tax-free growth: Any interest, dividends, or capital gains earned within a LISA are completely tax-free, meaning your savings and government bonus grow without being reduced by income or capital gains tax.
Part of your annual allowance. Contributions to a Lifetime ISA count towards your overall annual ISA allowance, but the government bonus on the LISA does not count towards the £20,000 limit.
Contribution window: You can open a LISA from age 18 up to 40 and continue to contribute until you're 50. The earlier you start saving, the more you can benefit from the government bonus.
Flexible use: You can use your LISA savings to buy your first home at any point, or you can wait and withdraw the funds at age 60 for any purpose.
One Lifetime ISA annually: You can open and pay into one new Lifetime ISA per 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?
Withdrawing funds from a Lifetime ISA before age 60 for reasons other than buying your first home incurs a 25% government withdrawal charge. The penalty applies to the total account balance, which can reduce both your contributions and any government bonus.
This rule is intended to encourage long-term saving and exceptions only apply in extreme circumstances, such as if you receive a terminal illness diagnosis. To avoid unnecessary loss, ensure you meet the qualifying conditions before accessing your Lifetime ISA funds.
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 savings path, with a fixed interest rate, no income tax to pay and the government's 25% bonus. The interest rates vary by provider, and while you can open a regular cash ISA at 16, you must be 18 to start a LISA.
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 save the maximum £4,000 every year from age 18 until 50, you would contribute £132,000 in total and receive a government bonus of £33,000.
On top of this, any interest, dividends, or investment growth earned within the account would increase your total savings even further, making the LISA a powerful way to boost funds for a first home or retirement.
📣 Did you know? From April 2027 only £12,000 of your £20,000 annual ISA contribution allowance can be saved in cash. The rest must be invested in stocks and shares. This does not apply to people aged 66 or over, who can continue to save their full ISA allowance in cash if they wish.
The pros and cons of Lifetime ISAs
Advantages
Government bonus: A 25% top-up on your savings is a significant incentive for investors
Flexibility: Free transfers between LISA providers and the option to transfer from other ISAs
Savings protection: The Financial Services Compensation Scheme protects your investment up to the first £120,000 in the event the savings or investment provider goes bust. With stocks and shares ISAs, you’re not protected against fluctuations in the value of your investment due to stock market falls, but you are protected if the ISA provider goes under
Complementary: Can be used alongside other schemes and long-term savings like 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 can't start a LISA after age 40, and the bonuses stop at age 50
Property restrictions: The first home must cost under £450,000, cannot be a buy-to-let property, and must be purchased with a residential mortgage
How do I open a Lifetime ISA?
The simplest way is to open an account online. You can usually open an account from £1 up to the annual limit of £4,000. You’ll just need proof of your identification and address. You can easily find and apply for a Lifetime stocks and shares ISA with MoneySuperMarket. The account must be open for at least 12 months before you can use it for a home purchase.
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
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.
Frequently asked questions
Can I transfer old ISA accounts into my LISA and gain the 25% government bonus?
You can transfer funds from an existing ISA into a LISA, subject to standard ISA transfer rules and provider terms, which will preserve their tax-free status.
However, the 25% government bonus is only paid on new contributions made into the Lifetime ISA, not on existing ISA savings that are transferred in.
This means you would only receive the bonus on amounts you actively pay into the LISA, up to the £4,000 annual limit. Some providers may also restrict transfers in, so it’s important to check the terms before proceeding.
Can I transfer Help to Buy ISA to Lifetime ISA?
Yes, you can transfer your Help to Buy ISA to a new Lifetime ISA. You can do this by contacting your Lifetime ISA provider to transfer your HTB ISA for you.
How many Lifetime ISAs can I have?
You can hold as many Lifetime ISAs as you wish provided you only pay into one in each tax year and do not exceed the £4,000 annual limit.
Is my money safe in a Lifetime ISA?
Lifetime Cash ISA: When it comes to the money you’ve saved in a cash LISA, your savings are protected up to £120,000 per banking institution. It’s important to remember your savings are protected per financial institution and not per account. This means if you have multiple savings accounts with the same banking group as your Lifetime ISA savings it could take you over the protection limit.
Stocks and Shares Lifetime ISA: Stocks and Shares LISAs come with investment risks – as your investments could go up or down in value. When it comes to FSCS protection in this scenario, you’re protected if you lose money if your bank or LISA provider goes bust. But you are not protected if the company you’ve held your shares in goes bust – as this is the risk of investing. Likewise, you’re not protected from general investment losses and falls in the stock market and the value of your underlying assets.
You can find out more about how your money is safeguarded with our guide on savings protection.
What happens if my house purchase falls through after I’ve closed my LISA?
If your house purchase falls through after you’ve requested a withdrawal from your LISA, what happens next depends on the stage of the process.
If the funds have already been released to your solicitor or conveyancer but the purchase does not complete, they will usually return the money to your LISA provider. As long as this is done within the permitted timeframe, your savings and government bonus are reinstated and you won’t face a penalty.
In most cases, this process is handled smoothly by your conveyancer. However, it’s important to ensure the funds are returned correctly, as withdrawals that don’t meet the qualifying conditions may be subject to the standard 25% government charge.
What is the process of using a LISA to buy a property?
To use your LISA to buy a property, the account must have been open for at least 12 months and the home must meet the qualifying criteria, including being your first property, costing £450,000 or less, and purchased with a mortgage.
Once your offer is accepted, you’ll need to instruct a solicitor or conveyancer, who will manage the legal process. Crucially, you should not withdraw the funds yourself, as this would trigger the 25% withdrawal charge. Instead, your conveyancer will apply to your LISA provider to release the funds directly to them. The money, including the government bonus, is then used towards your deposit at completion.
Author
Victoria Russell
General Manager - Commercial
Vikki has worked across financial services for over 20years, and for the last 15 years, created and nurtured a career within MoneySuperMarket Group, leading to her current role as General Manager for...
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Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
