Best Lifetime ISAs

Lifetime ISAs explained

Lifetime ISAs (LISAs) were first introduced by the UK Government in 2017 as a replacement for the Help to Buy ISA. Available to those aged 18 to 39, this type of ISA is specifically designed for saving tax-free towards purchasing a first home or for retirement.

Their main appeal is that the Government adds a 25% bonus on balances held in a Lifetime ISA. This means if you were to pay in the maximum of £4,000 per tax year, you could earn an additional £1,000 on this amount.

There are two main types of LISA to choose from: cash Lifetime ISAs and stocks and shares Lifetime ISAs.

With a cash LISA, your provider pays interest on any funds deposited. This is similar to other types of cash ISAs and traditional savings accounts.

In contrast, with a stocks and shares LISA, you’d be investing your money in the stock market. While this presents the possibility of greater returns, you must be aware that the value of your investment can go down as well as up.

Regardless of which type you opt for, there are some common rules which apply to all Lifetime ISAs:

• Only those aged between 18 and 39 can open a LISA, but you can continue paying into this account until you turn 50.
• You can only deposit up to £4,000 in a LISA each tax year – this means the 25% Government bonus is capped at £1,000 per year.
• The Government bonus is paid into your account four to 10 weeks after making a deposit meaning, like any other balance, it will earn interest over time.
• Any amount deposited in a LISA will count towards your £20,000 annual ISA allowance. However, the Government bonus doesn’t count towards this limit.
• While it’s possible to hold multiple LISAs, you can only open and pay into one of these accounts during the 2024/25 tax year.
• Withdrawals from a LISA will incur a 25% charge; this also applies when transferring a LISA to a different type of ISA.

When using a LISA to buy your first home, there are some key factors to bear in mind:

• You must be a first-time buyer. This means you can’t already own a property anywhere in the world, including buy-to-let or commercial properties.
• After making your first payment into a LISA, you must wait at least 12 months before using the funds in the account to purchase a property.
• The property you’re looking to buy must be located within the UK, worth less than £450,000 and purchased with a mortgage. You must also intend to live in the property, although it may be possible to rent it out at a later date.
• If you and a partner are purchasing a property together, you can both use LISAs and still receive the Government bonus, so long as you are both first-time buyers.
• However, if you hold both a Help to Buy ISA and a LISA, you can only receive the Government bonus from one of these accounts when buying your first home. It’s possible to transfer your Help to Buy ISA to a LISA – read our guide on transferring ISAs.

Using a LISA to save towards your retirement is relatively straightforward. Once you turn 60, you can make partial or full withdrawals from your account without incurring any fees. Any money left in your LISA will remain tax-free. Depending on your provider and the type of LISA, these funds may also continue to earn interest or can remain invested in the stock market.

As previously mentioned, there is no limit on the amount of LISAs you can hold. However, under current ISA rules, you can only open and pay into one LISA in the 2024/25 tax year.

If you’re using a LISA to buy your first home, it’s important you don’t withdraw the funds in your account, even if you’re ready to make a purchase. This would incur a 25% charge on the amount withdrawn and could result in you losing your tax-free wrapper. Instead, you’ll need to use a conveyancer or solicitor to act on your behalf, as your LISA provider will pay the funds to them directly.

Meanwhile, if you’re saving for later life with a LISA, your savings can be partially or wholly withdrawn without incurring any fees once you turn 60. It’s possible to make withdrawals outside of these parameters, but doing so will result in a 25% charge.

Following its introduction, the Government stressed that “the Lifetime ISA is designed to be a complement to pensions saving, not a replacement”. Pensions are a longer-term form of later-life saving which come with their own set of advantages and disadvantages.

Whether it’s smarter to pay into a Lifetime ISA or your pension will depend on your personal circumstances, including your age, your employment status and the level of access you’ll need to your savings. Read our ISA or pension guide to learn more. 

Our dedicated chart offers a comprehensive overview of LISA products on the market and their providers. You’ll find products from the likes of Moneybox and Paragon Bank, as well as building societies such as Skipton BS and Newcastle BS.

If you’re aged 18 to 39, you can apply for a LISA directly with a provider. Depending on which product and provider you choose, this can either be done online, in branch, over the phone, by post or using a mobile banking app.

As part of this process, you’ll need to supply your personal details; you may also be asked for photo ID or proof of address. Like most savings accounts, you’ll also need to be able to meet the minimum deposit specified by your LISA provider. For more information on product-specific opening requirements, view ‘further details’ next to an account on our chart.