Are you planning to purchase your first home but don’t seem to be able to save enough, or quickly enough?
Despite your best efforts, are traditional saving methods not providing the best return for you to purchase your home?
The Lifetime ISA is a specialised Individual Savings Account (ISA) designed specifically to help individuals save for their first home.
To be eligible for a LISA you must be a UK resident over the age of 18 and have made your first payment into the LISA before you turn 40. However, you can continue to pay into your LISA up until you are 50.
You can save up to £4,000 per tax year, whether this be by making regular payments or an annual lump sum deposit into your LISA.
The benefit of a LISA is that the government will add a 25% bonus to your savings (to a maximum of £1,000 per year).
You will also still receive interest from your LISA provider in the same way you would with a standard ISA.
Example 1
| Personal savings | £1,000 |
| LISA interest rate 3% | £30 |
| Government bonus | £250 |
| Total of | £1,280 |
Example 2
| Personal savings | £4,000 |
| LISA interest rate 3% | £120 |
| Government bonus | £1,000 |
| Total of | £5,120 |
Your LISA savings count towards your total annual ISA limit currently £20,000 and are tax free.
Examples
| Personal LISA savings | Remaining ISA allowance |
| £1,000 | £19,000 |
| £4,000 | £16,000 |
*the bonus paid does not count towards your tax free allowance.
Once you turn 50 you are no longer able to pay into your LISA or receive any further bonus, however you will continue to receive interest.
To use your LISA to buy your first home the following must apply:
- You are a First-time buyer
- The property costs £450,000 or less
- You buy the property at least 12 months after you make your first payment into the Lifetime ISA
- You use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them
- You’re buying with a mortgage
LISAs can also be used to save for Later Life.
You can withdraw money from your LISA if you’re:
- Buying your first home
- Aged 60 or over
- Terminally ill, with less than 12 months to live
It is important that you are confident you will only use your LISA for one of the above reasons as a withdrawal charge of 25% will apply if you withdraw savings for any other reason. This recovers the government bonus you received on your original savings.
Example 1
| Personal savings | £1,000 |
| Government bonus | £250 |
| Total of | £1,250 |
| 25% withdrawal fee | £312.50 |
| Remaining Saving | £937.50 (£62.50 less than original saving) |
Example 2
| Personal savings | £4,000 |
| Government bonus | £1,000 |
| Total of | £5,000 |
| 25% withdrawal fee | £1,250 |
| Remaining Saving | £3,750 (£250 less than original saving) |
As with normal ISAs interest rates go up and down so you are able to transfer your LISA savings to another provider should you wish.
When you are ready to use your LISA to purchase your first home, you will need to ask your provider to transfer the funds directly to your conveyancer/solicitor. If you withdraw the funds to an account in your name, you’ll pay the 25% withdrawal charge.
Your conveyancer/solicitor will guide you on when to request the fund, as the property purchase needs to complete within 90 days of receipt.
If the purchase is delayed after the funds have been received your solicitor/conveyancer can request an extension from HM Revenue & Customs.
If for any reason your purchase falls through, the funds can be returned to the LISA account they came from. You will not lose any savings and this will not affect your annual contribution; you’ll still be able to contribute up to £4,000 that tax year (unless you already have).
Lifetime ISA FAQ
A Lifetime ISA is a specialised Individual Savings Account (ISA) designed to assist individuals in saving for their first home or for later life.
To be eligible for a LISA, you must be over 18 years old, have made your first payment into the LISA before turning 40, and be a UK resident. Contributions can be made until you reach 50 years of age.
You can save up to £4,000 per tax year in a LISA, either through regular payments or an annual lump sum deposit.
The government adds a 25% bonus to your savings, up to a maximum of £1,000 per year. Additionally, you will earn interest from your LISA provider, similar to a standard ISA.
For example, if you save £1,000, the government will add a £250 bonus, making your total savings £1,250.
Yes, LISA savings count towards your total annual ISA limit, which is currently £20,000, and the contributions are tax-free.
No, once you turn 50, you can no longer make contributions or receive further bonuses. However, you will still receive interest on your savings.
You must be a first-time buyer purchasing a property costing £450,000 or less, and you must buy the property at least 12 months after making your first LISA payment. You also need to use a conveyancer or solicitor, and you must be buying with a mortgage.
You can withdraw money from your LISA if you’re buying your first home, aged 60 or over, or terminally ill with less than 12 months to live. Otherwise, a 25% withdrawal charge applies.
If you withdraw savings for any other reason than those specified, a 25% withdrawal charge will be applied, recovering the government bonus received on the original savings.
Yes, like normal ISAs, you can transfer your LISA savings to another provider if you wish.
(In current tax year the full contribution amount needs to be transferred if transferring to another provider, in previous tax years the full amount doesn’t need to be transferred)
You need to request your LISA provider to transfer the funds directly to your conveyancer or solicitor. If you withdraw the funds to your account, you’ll incur the 25% withdrawal charge.
If the property purchase is delayed after funds are received, your solicitor or conveyancer can request an extension from HM Revenue & Customs.
If your purchase falls through, the funds can be returned to your LISA account without affecting your annual contribution allowance.
Approved in partnership April 2024
