Login
Register Forgot password
Interactive Investor

What is a Lifetime ISA and Should I Get One?

Annie 4th Feb 2025 2 Comments

Updated 4th February 2025

A Lifetime ISA (or LISA) is an individual savings account that can help you buy your first home or save for retirement. Investors can receive a whopping 25% Government bonus on top of the money that they save, which makes them a pretty appealing option to consider.

In this guide, we will walk you through everything that you need to know about lifetime ISAs including what they are, how they work and how to get started with one in 2025.

ISA Basics

Grow your money with a Lifetime ISA

A Lifetime ISA is just one of the ISA options available. An ISA is an Individual Savings Account. The main difference between an ISA and any other savings account is that it offers tax-free interest. For other savings accounts, you’ll pay tax on any interest earned above £1,000 if you’re a basic rate tax payer, £500 for higher rate, and any interest for additional rate earners. That doesn’t apply to money in an ISA.

Yet, you do have a limit to how much you can put into an ISA. This is known as an ISA allowance, which for the 2024/25 tax year is £20,000.

There are different types of ISA, too:

You can open several each year, but your £20,000 allowance is split across them. If you take money out of your ISA, this often can’t be paid back in without counting as ‘new’ money for purposes of the £20,000 allowance. So, if you open a new ISA and want to transfer funds from and old one, you need to request an ISA transfer with the bank, instead of withdrawing the money and paying it in again.

What is a Lifetime ISA?

What does a Lifetime ISA offer that the regular ISA doesn’t? The answer is, free money from the Government!

A LISA is a long-term Independent Savings Account that was introduced in 2016. A Lifetime ISA offers you all the usual tax benefits of your standard ISA, but with an added government boost of 25% on your savings.

Lifetime ISAs were introduced to help those saving for their retirement and first-time buyers. This means there are some restrictions on who can have an account and what you can use the money for.

The maximum annual limit for a Lifetime ISA is £4000. This is included in your £20,000 ISA limit for the year, so you can break it down to a maximum of £4000 into your LISA and £16,000 to the other ISAs you hold.

Who Can Open a LISA?

To open a Lifetime ISA, you need to be aged between 18 and 39 (and 364 days) and be a UK resident. Unlike other ISA types, you can only have one LISA.

You will qualify for the Government contributions on your LISA until you turn 50, at which time you can no longer pay into the account, and the bonuses stop too.

Your LISA will stay open and you will continue to gain interest on your money long after the bonuses stop. So, if you are lucky enough to open a LISA when you turn 18 and pay in the maximum every year until you turn 50 then you will have amassed £33,000 in Government bonuses, plus £128,000 in your own savings – and that’s before interest!

Choosing a Provider

If you’re within the 18-39 age bracket, you can transfer your account between providers. So, don’t be afraid to shop around and get yourself the best interest rate each year.

WHATEVER you do though, you must transfer your Lifetime ISA through the bank’s transfer system. If you withdraw the cash and then put it into a new LISA, you’ll lose the Government bonus on that cash AND lose out on your personal allowance for the year.

Transfers are really simple to do, so make sure you go through the process! It takes a little longer than physically putting cash into your account, but it’s worth the wait.

Is there a LISA for over 40s?

No, there is no type of LISA available to people over the age of 40. The best alternative is a Cash ISA or a Stocks and Shares ISA.

Can I share my LISA with someone else?

No, a Lifetime ISA (LISA) is an individual account, so you can’t open one with someone else.

However, if you’re buying a house with a partner, you can both have separate LISAs and combine your savings (meaning double the government bonus!). Just remember that the property must cost £450,000 or less to use your LISA funds.

For retirement savings, your LISA is just for you—no joint accounts allowed.

When Can I Access My Money?

Lifetime ISA rules are strict

There is a pretty hefty catch to all this free money.

You can ONLY access your money if:

  1. You’re a first-time buyer and using your savings and the 25% bonus for your deposit, or
  2. You’ve turned 60

So, if you’re not buying a house, you can’t touch your money until you’re 60 years old. That’s what makes it a great retirement investment plan: your savings will accrue interest for TEN YEARS after your deposits stop, meaning a nice hefty tax-free lump sum available for your 60th birthday! Many self-employed people are choosing LISAs as part of their retirement plan, as the free bonus money makes up for not receiving pension top-ups as PAYE workers receive.

What if I need the money for something else?

If you need your LISA savings sooner rather than later, you’re facing a hefty penalty of 25%. So, if you paid in £4,000 and had the £1,000 bonus, but withdraw either in the first 12 months of the account or for something other than turning 60 or your first home, you would receive £3,750 back – which is £250 less than you paid in.

You can only access without a penalty in extreme circumstances, such as being diagnosed as terminally ill with less than 12 months to live.

Savings in a LISA also counts as capital for anyone applying for means-tested benefits, so keep that in mind, too.

How the 25% LISA Bonus Works

The Government pays 25% of your savings, up to £1,000 each year. This bonus is added at regular intervals – usually monthly – depending on the terms of the LISA.

You’ll gain interest on your savings AND the money from the Government bonuses.

When You Buy Your First House

Like the old Help to Buy ISAs, there are some rules to using a LISA for your first home.

You must:

  • Buy a home worth less than £450,000
  • Be a first-time property owner
  • Have held the LISA for at least 12 months prior
  • Be buying your home with a mortgage

If you’re buying with someone else, they can also have a LISA (if they haven’t owned property before, either). That means you can make the most of the 25% bonus – getting up to £2,000 a year extra between you to put towards your deposit.

When you’re ready to use your funds, you must use a conveyancing solicitor to act on your behalf to access the money.

When You Turn 60

If you’re not touching your LISA until you’re 60, you could build a lovely nest egg!

Let’s say you pay in the full £4,000 a year from the age of 18 to 50. You’ll also get £1,000 a year in Government bonuses. So, that’s a lump sum of £160,000 (32 years x £4000 and £32,000 in Government bonuses) – before you consider interest!

Let’s assume an average interest rate of 2% each year. By the end of your 50th year, you’ll have £224,242 sitting in your account – from your initial investment of £128,000.

AND THEN

Your money sits there for another ten years! Let’s assume the same 2% interest. When you can finally access your money at the age of 60, your account will hold nearly £274,000. That’s more than DOUBLE your initial investment.

And 2% interest is a conservative estimate! If you choose a higher-risk equities LISA, you could gain even more interest – maybe even 6% or 7%.

Is a lifetime ISA better than a sipp?

Whether a Lifetime ISA or a Self-Invested Personal Pension is better depends on your personal circumstances and goals. Here’s a quick breakdown:

LISA is better if…

  • You might want to buy a house (you can use LISA funds for a first home, but not a SIPP).
  • You like the idea of a 25% government bonus on savings (up to £1,000 per year).
  • You want tax-free withdrawals at age 60.
  • You want more flexibility and control, since LISAs work like an ISA rather than a pension.

SIPP is better if…

  • You’re focused solely on retirement (SIPPs can’t be used for buying a house).
  • You’re a higher-rate taxpayer (you get 40% or 45% tax relief instead of 25%).
  • You want to contribute more than £4,000 per year (LISA limits you to £4,000, while SIPPs allow up to £60,000 depending on income).
  • You don’t mind paying tax when you withdraw (only 25% of a SIPP is tax-free, the rest is taxed as income).

Types of LISA

So, what type of LISA is best for you?

LIfetime ISAs are good for first-time buyers

Cash LISA

The cash Lifetime ISA is the more basic and safest way to save through a LISA. Contributions to these are held in cash and earn interest just like in a normal savings account, but with the added benefits of being tax-free and qualifying you for the 25% Government bonus.

If you’re planning to buy a house with your LISA savings in the next five to ten years, this is likely to be the best option. Remember to shop around each year to see if you can transfer your LISA to a provider offering a higher interest rate.

Couples looking to buy their first home together can both get a Lifetime ISA and together save a maximum of £8000 between you and gain an extra £2000 bonus towards your deposit every year. So, in five years, you’ll have £40,000 to put on a deposit (not counting additional interest!).

Use a Lifetime ISA to build a tax-free nest egg for retirement

Stocks and Shares LISA

Alternatively, LISA contributions can be made by investments in stocks and shares or investment funds. This is known as a Stocks and Shares LISA, or an Equities LISA.

Investment Lifetime ISAs carry more risk than a cash LISA as your investments can go down as well as up, and it is recommended to hold them for a minimum of five years to let them even out.

You can choose different levels of investment risk. A cautious approach is better the closer you are to taking your money out of the account. The longer you plan to save, the more risk you can take (and potentially gain a higher reward).

The stock market fluctuates a lot, so small blips are worrying if you keep looking! Checking every few months will show you longer trends – and if you’re unhappy with how your LISA is performing, you can re-assign your funds.

If you’ve got long-term retirement plans for your LISA savings, an equities LISA is likely to give you the best returns on your money. Try not to watch the account closely week-to-week: instead, check every few months that the investments are going well.

How to Open a Lifetime ISA

Whenever you open a new investment account, its important that you follow the correct process (trust me, it will save you a LOT of headache in the long run!).

Here’s exactly how to open a LISA in the UK in the easiest way possible.

Step 1: Choose between a Cash LISA or a Stocks & Shares LISA

The first step is to choose which type of LISA you want to open.

  • Cash LISA: Works like a high-interest savings account, perfect if you want zero risk and guaranteed returns.
  • Stocks & Shares LISA: Your money is invested in the stock market, which means higher potential returns but also more risk.

If you’re buying a house in the next few years, stick with a Cash LISA. If you’re saving for retirement (and have time to ride out market ups and downs), a Stocks & Shares LISA might be better.

Step 2: Pick a LISA provider

  • Not all LISAs are created equal, so shop around! Some key things to look for:
    Best interest rates (for Cash LISAs)
    Low fees (for Stocks & Shares LISAs)
    Good customer service & easy access (because nobody likes hassle!)

Popular LISA providers include Moneybox, AJ Bell, Nutmeg, Skipton, and Hargreaves Lansdown—but check comparison sites to find the best one for you.

Step 3: Open your account & make your first deposit

Once you’ve chosen a provider, you’ll need to:

  • Sign up online or via an app – This usually takes just a few minutes.
  • Verify your ID – You might need to upload a passport or driving licence.
  • Deposit money – You can put in up to £4,000 per tax year (and the government will top it up by 25%—up to £1,000 free per year!).

Step 4: Keep contributing & watch your savings grow

The magic of a LISA is that every £4 you save = £1 free from the government. Keep adding money whenever you can (even if it’s just £10 here and there), and over time, your savings will add up nicely.

Pro tip: Set up a direct debit so you automatically save each month without thinking about it.

Step 5: Know when you can withdraw

There are only two ways to withdraw money without a penalty:

  • Buying your first home (up to £450,000) – You need to have had your LISA open for at least 12 months before using it.
  • Retirement – After age 60, you can take out all your money, including government bonuses and interest, completely tax-free.

If you withdraw for any other reason before you’re 60, you’ll face a 25% penalty—which actually means losing more than the bonus you got! (So don’t dip into it unless absolutely necessary).

Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.

investing newsletter

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.



IG

2 responses to “What is a Lifetime ISA and Should I Get One?”

  1. Message- Process №KT59. LOG IN => https://telegra.ph/Get-BTC-right-now-01-22?hs=9d1787f713e991f4d99ba344c5489da3& says:

    em8bux

  2. Tom says:

    Some real food for thought here. Thanks.

Leave a Reply

Your email address will not be published. Required fields are marked *

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

Send this to a friend