What is a Lifetime ISA?

27/11/2022
(Last Updated: 21/05/2024)
156
5 min read
The Government has announced the launch of a new Lifetime ISA (or LISA), from April 2017, from which savers can receive a 25% bonus which can be put towards buying a home and retirementsavings. Declaredly the Government wishes ‘to help young people save flexibly for the long-term throughout their lives’.

The assistance towards buying a home makes it have some similarities with the Help to Buy ISA, but there are also notable differences, please click on  Lifetime ISA vs Help to Buy ISA to see our handy infographic which compares both.

Click if you want to know how to obtain your Government bonus from your Lifetime ISA when buying your first home.

Who is eligible for the Lifetime ISA?

You must be between 18 and 40 years old to open a Lifetime ISA account.

How does the Lifetime ISA work?

  • You save up to £4,000 each year and the Government pays you a bonus of 25% of the amount saved. There is no minimum or maximum monthly contribution but you cannot put in more than £4,000 per year.
  • You can make contributions and have the bonus added from 18 years old up to age 50.
  • Over a lifetime, this means you could save a maximum £128,000 which would mean you receive a maximum £32,000 Government bonus and you stand to receive investment growth both on your contributions and on the bonus.

How do ISAs work?

An ISA, which means Individual Savings Account, is a savings account for which you never have to pay tax on the interest - the Government ostensibly constructed these accounts to encourage people to save. Each year, the Government sets a limit as to how much money you can put into ISA form to take advantage of the tax break - for the tax year 2018 - 2019, the figure has been set at £20,000.

You are well advised to visit HM Government's ISA information page to find out authoritatively what the current rules are, however when last updated, the broad rules for ISAs were as follows:
  • You can open up one new cash ISA per year - NB the Help to Buy ISA counts as a cash ISA but the Lifetime ISA does not (read on) so you could choose to open up both at the same time (assuming you haven't already opened up a different cash ISA already for the tax year)
  • There are four different types of ISA, namely:
    • cash ISAs;
    • stocks and shares ISAs;
    • innovative finance ISAs; and
    • Lifetime ISAs
  • You can save up to your maximum allowance for the tax year (£20,000 for 2018/19) and you have free choice as to how you divide up your allowance e.g. you might put it all in one stocks and shares ISA or divide it between all 4 types (but please note, you are restricted as to the maximum you can put into either a Help to Buy ISA (£1,200 per year or £2,400 if starting it up with the £1,200 maximum initial deposit) or a Lifetime ISA (£4,000 per year))
  • You have to be a minimum 16 years old to open a cash ISA, 18 years old to open a stocks and shares or an innovative finance ISA and between 18 and 40 to open a LISA
  • You have to be resident in the UK or a Crown servant (for example diplomatic or overseas civil service) or their spouse or civil partner to open any ISA.

Lifetime ISA Explained Diagram
Frequently Asked Questions
HOW
MONEY
PARTNER
NOTFTB
HTB
Andrew Boast of Sam Conveyancing
Written by:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh Bailey, Digital Marketing Manager
Reviewed by:

Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.


People also search for

How we uncovered the truth behind the Help to Buy ISA

How we uncovered the truth behind the Help to Buy ISA

27/01/2020
1,868
Lifetime ISA withdrawal - How do I make a withdrawal to buy a house?

Lifetime ISA withdrawal - How do I make a withdrawal to buy a house?

21/08/2022
492
SAM Conveyancing explains the difference between Lifetime ISA vs Help to Buy ISA

Lifetime ISA vs Help to Buy ISA

29/11/2019
809