How does a Lifetime ISA (LISA) work?

Eligibility and Rules Lifetime ISAs can be opened by people in the UK aged 18 to 39. You can continue making contributions and receiving a bonus until the age of 50. The earliest you can use the money held inside for a house deposit is 12 months after opening the account. If you are using the Lifetime ISA for retirement savings, the earliest you can withdraw money is age 60. You can take money out before this but you’ll pay a 25% charge – losing the government bonus with an additional penalty. Benefits The main benefit of the Lifetime ISA is the 25% government bonus, which will give your savings a boost in addition to interest or investment returns. If you are using the Lifetime ISA for retirement, money you withdraw after the age of 60 will be tax-free. This means you won’t have to worry about income tax, dividend tax or capital gains tax. Contribution Limits You can pay up to £4,000 a year into a Lifetime ISA, an amount that hasn’t changed since Lifetime ISAs were introduced in 2017. The government will pay a bonus of 25% (up to a total of £1,000 a year). This bonus is paid monthly after the 5th of each month. This £4,000 forms part of your overall £20,000 ISA allowance. Couples can each use a Lifetime ISA towards a joint property, so you effectively get double the allowance if you are buying with a partner.

How do I open a Lifetime ISA?

To open a Lifetime ISA, simply go to the website of your chosen provider and start the application process. You’ll need your national insurance number and either your debit card details to make your first contribution or your bank details if you want to set up monthly payments. You should be able to get started almost straight away. You can only open and pay into one Lifetime ISA each tax year. It’s possible to hold multiple Lifetime ISAs if they are opened in different tax years (6th April to 5th April). You can transfer to another provider, but some only accept transfers if you’re aged between 18 and 39.

Is a Lifetime ISA worth it?

If you are saving to buy your first home, then a Lifetime ISA is worth considering. You get a free government bonus of up to £1,000 a year. cottageReal-world example Personally, I hold an investment Lifetime ISA as a supplement to my pension. The fact you can withdraw money from it tax-free is appealing, especially since the alternative of pension income is subject to income tax. Although I haven’t paid into my Lifetime ISA for a few years, I keep it as a fallback option if needed. It’s important to note that you can only open a Lifetime ISA before the age of 40, so it might be wise to open one early to keep your options open. Be aware though that you can’t use the account for a home deposit within the first year of opening the account. Additionally, you can only use a Lifetime ISA when buying a home up to the value of £450,000. This limit has been frozen since 2017 and property prices have risen by almost a third since then. If you live in London or the South East, where property prices are high, you may find you cannot use your Lifetime ISA for the home you want. In this case, your options are to withdraw your money from the Lifetime ISA and pay the 25% withdrawal penalty or choose to keep the money in the Lifetime ISA for retirement. A Lifetime ISA generally isn’t worth it for retirement savings if you are a higher-rate taxpayer, as you’d be able to claim 40% or 45% tax relief on pension contributions compared with a 25% bonus for the Lifetime ISA. However, a benefit of the Lifetime ISA is that you could boost your tax-free income in retirement as money withdrawn from pensions may be liable for income tax.

Which banks offer Lifetime ISAs?

The main high street banks generally don’t offer Lifetime ISAs. Savings providers offering cash Lifetime ISAs include Paragon Bank, Skipton Building Society, and Newcastle Building Society.

What’s better, a Help to Buy ISA or a Lifetime ISA?

Help to Buy ISAs are no longer available to new applicants, so you won’t be able to open one now. However, if you already have a Help to Buy ISA you can continue to pay into it until 2029, when contributions will no longer be allowed. In general, the Lifetime ISA is better than the Help to Buy ISA because you can get a higher bonus from the government of up to £1,000 a year. With the Help to Buy ISA, the most you can get in total from the government bonus is £3,000.

Can I have a Cash ISA and a LISA?

Yes, it’s perfectly possible to have both. You can pay up to £4,000 into a Lifetime ISA, so if you are saving more than this for an upcoming house purchase then you may also want to save into a cash ISA to benefit from tax-free interest. Be aware there is an overall limit of £20,000 that can be paid into ISAs each year. So if you pay the full £4,000 into a Lifetime ISA, you’d have £16,000 remaining to invest in either a cash ISA or stocks and shares ISA. escalator_warningInterested in learning more about ISAs? Get the full rundown on ISAs by reading my complete guide to ISAs in the UK . Learn how to open a stocks and shares ISA . When you decide what kind of account you'd like to open, discover my picks for the best providers for stocks and shares ISAs or the best providers for cash ISAs .

Best Lifetime ISAs

Written by Elizabeth Anderson
Fact-checked by Steven Hatzakis
Edited by Jeff Anberg

October 02, 2024

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We've been reviewing financial products and services and writing about U.K. markets since 2016. Blain Reinkensmeyer, Elizabeth Anderson and Steven Hatzakis have each placed thousands of trades, including shares, options, futures, cryptos, and forex. Find out more about us and how we test.

Lifetime ISAs are mostly used by people looking to save for their first home, but they can also be an alternative to a pension. A Lifetime ISA, or LISA, should always be considered as the first place to save for your house deposit because you’ll get a 25% top-up from the government on savings of up to £4,000 a year. There are limitations, however – a major one being that a Lifetime ISA can only be used towards a home costing up to £450,000.

There aren’t many providers offering Lifetime ISAs. Of those that do, they will typically either offer a cash or investment option, even fewer offer both. In this article, I will help you figure out which Lifetime ISA might be best for you. I focus on investment Lifetime ISAs - for those saving long-term for a home or retirement - although some also pay competitive interest rates on cash held in the account.