What is a Lifetime ISA?
A Lifetime ISA (LISA) is a savings account that gives first time buyers a 25% government bonus on savings up to £4,000 per year. Save £4,000 and receive £1,000 bonus - free money toward your deposit. You can also use it for retirement after age 60.
You must be 18-39 to open a LISA, and it must be open for at least 12 months before you can use it for a property purchase. This encourages forward planning for first-time buyers.
The 25% Bonus
The government adds 25% to whatever you save, up to £4,000 contribution per tax year. Maximum annual bonus is £1,000. You can contribute until age 50, potentially building significant funds with bonuses over many years of saving.
Bonuses are added monthly, so you see your account grow throughout the year. Unlike the old Help to Buy ISA (now closed to new accounts), the bonus is paid as you save rather than at property completion.
Using Your LISA for a Property
You can use LISA funds (savings plus bonuses) toward a first home worth up to £450,000. The purchase must be with a mortgage, and it must be your main residence. The account must have been open for at least 12 months before withdrawal.
Your solicitor withdraws the funds directly from your LISA provider during the conveyancing process. The money goes toward your deposit and purchase costs.
Withdrawal Penalties
If you withdraw for any purpose other than buying your first home or retirement after 60, you'll face a 25% penalty on the amount withdrawn. This effectively removes your bonus plus some of your original savings. Only withdraw early in genuine emergencies.
The penalty has been temporarily reduced to 20% during certain periods, but normally sits at 25%. Check current rules before making any non-qualifying withdrawal.
LISA vs Help to Buy ISA
Help to Buy ISAs closed to new accounts in 2019, but existing holders can still use them until 2029. If you have both, you can only use one for a property purchase. Generally, LISA is better for higher property values (bonus paid on actual savings rather than limited to £3,000) while Help to Buy ISA was simpler for smaller purchases.
New savers should focus on LISA as the available option. The higher property price cap (£450,000 vs £250,000/£450,000 for Help to Buy) makes it suitable for more of the market.