What is a Lifetime ISA?

A Lifetime ISA is a tax-efficient individual savings account with which you can purchase your first home or save for later life – it’s just one of the ways you can save for retirement.

Who is it for?

A Lifetime ISA account can only be opened by 18-39 year olds. You need to be a UK resident to open and continue paying into a Lifetime ISA; the only exceptions are if you are a crown servant or their spouse or civil partner.

How does it work?

You can contribute a maximum of £4,000 every year, until you reach 50 and the government will add a bonus of 25% to what you save (up to £1,000 each year). And you’ll be able to earn interest on this too.

It’s worth noting that the £4,000 limit set counts towards your annual ISA cap, which is set at £20,000 for the 2023/24 tax year.

You are able to choose whether you hold cash or stocks and shares or a combination of each in your Lifetime ISA.

The 25% fee you are charged for withdrawing cash or assets isn’t applicable if you are purchasing your first home, are 60 or over or are terminally ill with under 12 months to live.

On reaching 50, you can no longer pay into the Lifetime ISA or receive the 25% bonus, however your account will remain open and you will still benefit from interest or investment returns on your savings.

How it works if you are buying your first home

If the property costs £450,000 or under, the account has been open for at least 12 months, you are buying with a mortgage and you appoint a solicitor or conveyancer to help you with the purchase, you are able to use your savings to buy your first home without incurring a withdrawal charge.

If you are buying your first home with someone else who also has a Lifetime ISA, they are able to use their savings and bonus from the government too. However, if they aren’t a first time buyer, they would incur the withdrawal charge.

If you own a Help to Buy ISA, you are able to transfer your savings into your Lifetime ISA. Alternatively, you continue saving in both; however, you will only be permitted to use the bonus from one of these savings accounts to buy your first home.

You are able to transfer the balance of your Help to Buy ISA into your Lifetime ISA whenever you wish, as long as the amount isn’t over £4,000.

When you can access your funds if saving for later life

If you are saving for later life, you can access your funds once you’ve reached 60 or over. Taking the savings earlier will result in a 25% fee, as will transferring the Lifetime ISA to another kind of ISA.

Should you die, your Lifetime ISA ends on that date. There are no charges for withdrawing monies or assets from your account.