Lifetime ISA

The Basics

In a nutshell

• You must be 18-39 to open one
• Save up to £4,000 a year
• Must be for a first home OR retirement
• Hefty withdrawal penalties

What is a Lifetime ISA?

If you’re aged between 18 and 39, the Lifetime ISA offers a tax-free way to save – but with an appealing extra. You can save up to £4,000 a year and get a 25% top-up from the Government ie a free £1,000 a year. This account has been designed to be used either for the purchase of a first home OR for retirement.

Is It Right For Me?

LISA holders can earn a 25% bonus from the government.

The Numbers

What could I make?

Unlike the Help to Buy, the Lifetime ISA has a stocks and shares flavour.

Stock markets are volatile so if you think you’ll buy that flat in the next three years, then the stock market is probably not your best bet. But if this is at least a 5 year saving plan, then it’s worth considering.

In 2018, for example, the FTSE 100 went down by about 12%. But over the last 5 years it’s gone up by about 15%. It is volatile and the main thing is to avoid being a forced seller into a slump.

This chart shows you just how much you stand to make by taking advantage of the maximum Lifetime ISA allowance. Over 32 years (assuming you start at 18 and continue to save until you are 50) you could potentially squirrel away £128,000. The Government will top up £32,000 in bonus contributions, and if we assume an average of 5% growth (not guaranteed folks so example only) you stand to earn an additional £235,319.

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The Benefits

  • Get a bonus of up to £1,000 a year ‘till you’re 50

  • That’s up to £32,000 free cash from the Government!

  • Great if you're convinced that you want to buy a house or that the money’s for retirement

  • The bonus is provided on exchange not completion

  • Access the stock market’s potential too

  • If your partner is also a property first-timer you can both use the LISA

The Detail

Help To Buy Lifetime ISA - Audio Guide

ISAs have been breeding like rabbits – there are more than ever to choose between. In this audio guide Holly and Georgie pit the Help to Buy ISA against the Lifetime ISA. Click here to give it a listen!

Your Questions

I Have A Help To Buy ISA, Can I Move It?

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 £4,000 a year and so benefit from the higher total free Government bonus. The big caveat is that there are no hefty withdrawal fees on the Help to Buy ISA if you change your mind and just close the account. There is a 6.25% penalty charge on all contributions you make into a Lifetime ISA if you withdraw the money and don’t use it for a property.

You can choose to transfer all, or just some of the 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 April 6th). 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.

Also just remember that the Lifetime ISA needs to have been opened for at least 12 months before you can use it to buy your first home.