Lifetime ISAs

If you’re a first-time buyer or looking to plan your finances over the long term, a Lifetime ISA (LISA) can offer some valuable benefits that are well worth exploring. In this guide, we’ll explain what a Lifetime ISA is and how it works, where to find competitive rates and providers, a clear overview of the rules, and plenty more besides.

What is a Lifetime ISA?

It’s a tax-efficient UK savings and investment account designed for two specific goals:

• Buying your first home

• Saving for retirement

The main attraction of a Lifetime ISA is the 25% government bonus added to your contributions (up to the annual limit).

As with other ISA accounts, money held in a LISA can grow free from UK Income Tax and Capital Gains Tax (CGT), provided any withdrawals are made in line with the rules.

How do they work?

You can open a Lifetime ISA between 18 and 39, and you can keep paying in until you turn 50. You can currently contribute up to £4,000 per tax year, and the government adds a 25% bonus — up to £1,000 each year.

There are two main types of Lifetime ISA:

Lifetime Cash ISA

A Lifetime Cash ISA works much like a standard Cash ISA.

Your money is held as cash and earns interest at either a variable or fixed rate set by the provider. The government bonus is added on top of your contributions (and any interest earned).

This option is often preferred by:

• First-time buyers saving towards a short-to-medium term property purchase

• People who want certainty and are happy to accept potentially lower returns

Lifetime Stocks and Shares ISA

A Lifetime Stocks and Shares ISA lets you invest your contributions and the government bonus into assets such as funds, shares, or ready-made portfolios.

This option is usually best for:

• People saving without immediate plans to purchase a home

• Long-term savers using the account to supplement retirement income

• Those comfortable with investment risk and market fluctuations

Lifetime ISA UK rules

Here’s a summary of the UK Lifetime ISA (LISA) rules:

• You must be aged 18 to 39 to open a Lifetime ISA.

• You can keep making contributions until age 50.

• You can contribute up to £4,000 per tax year.

• The government adds a 25% bonus (up to £1,000 per year).

• You can use the money to buy your first home or take it out from age 60 for retirement.

• The account must be open for at least 12 months before you can use it to buy a first home.

• Withdrawing for anything other than a first home purchase or retirement usually triggers a 25% withdrawal charge.

• The maximum property purchase price is £450,000.

• The £4,000 LISA limit counts towards your overall £20,000 annual ISA allowance.

Best Lifetime ISA rates

The best Lifetime ISA rate will depend on whether you’re saving in cash or investing through a stocks and shares Lifetime ISA, as well as how long you expect to keep the money in the account:

• Cash Lifetime ISAs: Rates vary between providers and can change regularly in response to movements in the Bank of England (BoE) base rate. Some providers let you open an account with as little as £1, while others may require a higher minimum opening deposit.

• Stocks and shares Lifetime ISAs: Returns depend on the investments you choose, along with any platform fees and fund charges. Over longer periods, investing may offer greater growth potential than cash, but values can rise and fall — particularly over the short term.

If you’re unsure whether a cash or stocks and shares Lifetime ISA is the right fit, or how a Lifetime ISA sits alongside pensions and other savings, speaking to an independent adviser can help you understand your options more clearly.

Top 10 UK Lifetime ISA providers

Here are some of the most popular and well-known Lifetime ISA providers, along with the type of account offered.

Keep in mind, not all banks or platforms offer Lifetime ISAs. For example, HSBC, First Direct, Bank of Scotland, Fidelity, Nationwide, Virgin Money, RBS, TSB, and plenty more don’t offer Lifetime ISA products.

Because products and rates change frequently, if you want a review of all the best Lifetime ISA options in today’s market, we can help you carry out an up-to-date comparison.

Lifetime ISA withdrawals

Penalty-free withdrawals from a Lifetime ISA are only allowed if you’re:

• Buying your first home

• Accessing the funds from age 60 for retirement

• Diagnosed with a terminal illness

Any other withdrawal will usually trigger a 25% withdrawal charge, meaning you could receive less than you paid in, as the charge effectively takes back the bonus and more.

Can you transfer a Lifetime ISA?

Yes. Whether a transfer is possible depends on your current provider and the provider you want to move to, but in many cases you can transfer:

• Between Lifetime ISA providers

• From a different type of ISA into a LISA (subject to the £4,000 annual LISA limit)

• From a LISA into a different type of ISA (but this will usually count as a withdrawal and you’ll typically pay the 25% charge)

Transfers must be completed using the official ISA transfer process. Avoid withdrawing the money and moving it yourself, as this can trigger the withdrawal charge and may mean you lose the government bonus. Also, you cannot directly transfer money from a pension into an ISA (or from an ISA into a pension).

Lifetime ISA vs SIPP pension

Because of the retirement component, it’s fairly common for people to compare Lifetime ISAs and SIPPs. Here are the key things to know about these accounts:

Many people use both accounts as part of a wider retirement strategy:

• For basic-rate taxpayers without employer contributions, a LISA can provide good value.

• For higher-rate taxpayers or those with employer contributions, pensions and SIPPs often provide better value.

Unlike pensions, you pay into a LISA with post-tax income, but withdrawals are generally tax-free if taken correctly.

Pros and cons of LISAs

Here are the main advantages and disadvantages of UK Lifetime ISAs.

Pros

• 25% government bonus on deposits

• Tax-free growth and withdrawals (when used within the rules)

• Useful for first-time buyers and retirement saving

• Available as cash or stocks and shares options

• Can be a helpful tool for long-term retirement planning

• Typically low account fees to hold (especially for cash LISAs)

• Wide choice of providers

• Straightforward to manage alongside other ISAs

Cons

• Age limits apply to opening, paying in, and accessing funds

• 25% withdrawal charge if used for anything other than an eligible purchase or retirement

• £450,000 property price cap for first-home purchases

• Lower annual contribution limit than pensions (£4,000 per tax year)

• Uses part of your £20,000 annual ISA allowance

• No employer contributions (unlike workplace pensions)

• Must be open for at least 12 months before using it to buy a first home

• Investment choice can be limited depending on the provider

Frequently Asked Questions