Lifetime ISAs for First-Time Buyers and Retirement: A No-Nonsense Guide
The basics of Lifetime ISAs
Lifetime ISAs (or LISAs) are a clever way to save or invest for two of life's biggest financial goals: buying your first home or retirement. In return, the government gives you a juicy bonus of 25% on whatever you put in - up to £1,000 a year of free money!
You can open one if you're aged 18-39 and pay into it until you're 50, and your savings can sit in cash or be invested in the stock market, depending on your risk appetite.
But there’s a catch. The money can only be used to purchase your first property (and only if it's worth £450k or less) or withdrawn tax-free after age 60 for retirement purposes. Use it for anything else, and there’s a painful penalty of 25% of the total value of your pot.
You can think of a LISA like a savings account with strings attached. But if you play by the rules, it’s one of the most generous saving tools out there. Whether you’re planning to get on the property ladder or add to your retirement pot, a LISA could give your efforts a serious boost.
Is a Lifetime ISA right for me?
I generally think that investing little and often is a sensible approach. But for a Lifetime ISA, I think compounding means you should consider putting in your £4,000 as early in the tax year as possible, if you can. Because you secure the 25% top-up, so that snowball gets rolling sooner. The risk is that markets then plunge. However, I would say that anyone saving for a property deposit in a Stocks & Shares LISA should have a timeframe of at least 5 years, so you should be able to ride out any wobbles over this longer term. Less than that and a Cash LISA might be a "safer" route.
The pros of Lifetime ISAs
✅ Free government bonus
This is the headline act. For every £4 you contribute, the government adds £1 - up to a maximum bonus of £1,000 each tax year. That’s an instant 25% boost just to reward you for saving, with no extra work required. Whether you're saving for your first home or for later life, it’s one of the most generous incentives out there. Over time, consistent saving can stack up significantly; If you maxed out your £4,000 annual contributions for a solid 10 years, you'd get an extra £10,000 in bonuses.
Regular savings vs LISA (with bonus)
For illustrative purposes only. Based on contributions of £4,000 per year and maximum £1,000 LISA bonus. Not inclusive of any cash interest or investment returns.
✅ Tax-free growth
Like all ISA accounts, any interest on cash or dividends or gains from investments earned with your Lifetime ISA are free from Income Tax and Capital Gains Tax. That applies whether you go for a Cash LISA or a Stocks & Shares LISA. Over the long term, this can make a meaningful difference to your total savings, especially if you’re investing and then reinvesting your gains over decades to benefit from the power of compounding.
✅ Couples can combine their savings
If you’re in a couple and you both maximise your Lifetime ISA allowances, over 10 years you could potentially save £100,000 towards the purchase of your first home! Just remember the maximum £450,000 house price limit doesn't increase even if you combine LISAs with someone else.
The cons of Lifetime ISAs
❌ 25% withdrawal penalty
This is the sting in the tail. If you take money out of your LISA for anything other than your first home or after age 60, you'll face a 25% penalty on the total withdrawal amount. That’s not just losing your bonus - it actually eats into your own savings. For example, save £4,000 and you’ll get a £1,000 bonus. But if you withdraw early, you’ll get back just £3,750 – losing £250 of your original cash. Put simply, it's best to completely avoid having to withdraw LISA funds for any reason other than buying your first property or for retirement, or you risk undoing potentially years of diligent saving as well as the free bonus.
Generally, people don’t plan to make ‘unauthorised’ withdrawals, but they end up doing so because life doesn’t always go according to the script.
❌ Annual contribution cap
Another big downside to the LISA - you can only put in up to £4,000 per year (significantly less than the overall £20,000 annual ISA allowance). This will be plenty for many savers, but if you’re a higher earner or looking to aggressively build up retirement savings, the cap can feel tight. Plus, you can only contribute up to the age of 50, even though you can’t access the money without penalty until 60. That effectively gives you a 32-year window (from 18 to 50) to contribute, and means planning ahead is key.
❌ £450,000 house price cap
Finally, to use your LISA savings to buy a home, the property must be valued at a maximum of £450,000. That might be perfectly doable in many parts of the UK, but in London, the South East, and other high-demand areas, it can be a dealbreaker. Go even a pound over the limit and your entire LISA withdrawal becomes ‘unauthorised’, triggering that nasty 25% penalty. It’s a hard line and one to watch closely if you’re looking to buy in a pricey area. This interactive house price map can give you a good indication of what property prices are like in the region you want to buy in.
The £450,000 cap on the value of a first home a LISA saver can use their pot for is restrictive as it has never increased and average homes in some parts of the country, particularly in London, are higher than this - something that can prevent first-time buyers from using their LISA pot for its intended purpose.
Top questions about Lifetime ISAs
Should I get a Cash or Stocks & Shares LISA?
There are two types of Lifetime ISA: Cash and Stocks & Shares. Both come with the same government bonus and annual limits, but they work very differently. Picking the right one comes down to your time horizon, risk appetite and what you’re saving for.
Cash LISAs are simple - they work essentially like a savings account, with interest paid tax-free. Your money is protected (up to £85,000 per provider under FSCS), and your returns are pretty predictable as with most cash products. Ideal if you’re:
Planning to buy your first home within the next 5 years or so
Risk-averse and don’t want to worry about market ups and downs
Stocks & Shares LISAs invest your money in things like shares, bonds and funds to grow your savings over the long term, ideally beating inflation and interest rates. Best suited for savers who are:
Investing for retirement or a home more than 5 years away
Comfortable with ups and downs in the market
How much could I save with a Lifetime ISA?
The amount you can build up in a Lifetime ISA depends on how much you contribute, whether you choose a Cash or Stocks & Shares LISA, and how your savings or investments perform over time.
If you max out your contributions on a Cash ISA (£4,000 a year from age 18 to 50), you could deposit £128,000 in total. Add in the 25% government bonus, and that’s an extra £32,000, bringing your pot to £160,000. And that's not including any interest earned on top of this.
With a Stocks & Shares LISA, you benefit from potential investment growth. Assuming average annual returns of 5% (not guaranteed and used here purely as an illustration), your Lifetime ISA could grow to over £395,000 by age 50. That’s the power of long-term investing and compound interest again.
However, stock markets do rise and fall and returns are never guaranteed. So while the potential for higher returns is real, so is the risk of losses, especially in the short term.
A Cash LISA, on the other hand, offers more stability - but usually lower growth. The interest paid on Cash LISAs differs from provider to provider and may struggle to keep pace with inflation - eroding the real value of your savings over longer periods of time. While they can work well for short to medium-term homebuyers, cash savings are usually less effective for long-term retirement savings.
LISA calculator
This Lifetime ISA calculator from Plum can help you to forecast how much you could save, including the government bonus, and assuming any cash interest or investment returns. It also allows you to compare your savings to average house prices in different parts of the UK to see how your deposit might measure up to the market. Click the link below to start.
Can I use my LISA with someone else?
Yes, you can use your Lifetime ISA alongside someone else’s when buying your first home. If both of you are first-time buyers and each have a LISA, you can both put your savings and the 25% government bonuses towards the same property. That could mean up to £10,000 a year between you in contributions and top-ups, which can give your deposit a serious boost!
But here’s the catch: if your partner (or co-buyer) is not a first-time buyer, you can still use your LISA, but they can’t use theirs. The property must also still cost £450,000 or less. The non-first-time buyer would need to fund their share another way.
So yes, you can buy with someone else - but whether they can use a LISA too depends on their own first-time buyer status.
Can I move a Help to Buy ISA to a Lifetime ISA?
Yes, you can. People generally consider moving if they want to access the stock market - not just cash - or if they can save up to the maximum £4,000 a year and so benefit from the total government bonus. The big caveat is that there were no hefty withdrawal fees on the Help to Buy ISA if you changed your mind and just closed the account. However, remember that there is one on all withdrawals from a Lifetime ISA that aren't explicitly for purchasing your first property or for retirement.
You can choose to transfer all - or just some - of a Help to Buy ISA into a Lifetime ISA, as long as you don’t transfer more than the annual £4,000 LISA allowance during a single tax year (which runs from 6 April). If you have more than £4,000 in a Help to Buy ISA, you’ll have to stagger the transfer over more than one tax year and do it in two hits. And you'll be foregoing the penalty-free withdrawals of the Help to Buy ISA. So think carefully about whether this is definitely the right choice for you.
Also, a Lifetime ISA needs to have been opened for at least 12 months before you can use it to buy your first home, so bear this in mind if you're considering switching close to when you purchase a property.
What happens to my LISA after I turn 50?
Once you turn 50, your Lifetime ISA effectively locks. You can no longer pay into it, and the 25% government bonus stops. However, the money you’ve built up doesn’t disappear - it stays invested or in cash (depending on the type of LISA you chose) and continues to grow tax-free. You can leave your money where it is until you're ready to access it - which can be any time from age 60 without penalty.
Key takeaways on Lifetime ISAs
💰 25% government bonus but with strings attached
The Lifetime ISA gives you a hefty 25% boost from the government, up to £1,000 a year. But that generosity comes with rules: use it only for a first home (under £450k) or after age 60, or you’ll be penalised. It’s a powerful savings boost - unless you break the terms.
🏠 Designed for first homes or retirement, not much else
LISAs are laser-focused on two life goals: buying your first property or building a retirement pot. That’s great if you’re aiming for either, but it makes your money less flexible than with other ISAs. Emergencies? Big trips? You’ll pay to dip in early.
📊 Cash or Stocks & Shares - pick based on timeline
Generally, Cash LISAs are better for short-term homebuyers, while Stocks & Shares LISAs suit longer-term savers who want to beat inflation and can ride out market swings. Either way, all growth is tax-free - a big win over standard savings accounts.
