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Lifetime ISA Frequently Asked Questions

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The Lifetime ISA (LISA) is a tax-free savings account that’s designed to help you get on the property ladder if you’re a first-time buyer or help you save towards retirement. It was launched following the withdrawal of the Help-to-Buy ISA in November 2019 and it offers savers the benefit of a generous 25% government bonus, as well as an interest rate of 0.75%.

To help you understand how a Lifetime ISA works and how it differs from the Help-to-Buy ISA, we've answered the most frequently asked questions below.

Who can open a Lifetime ISA?

If you’re a UK resident aged between 18 and 39 then you can open a Lifetime ISA. The 25% government bonus is paid each year on your balance until you reach age 50. After then, the bonus no longer applies but you’ll still receive interest on your Lifetime ISA savings.    

How does a Lifetime ISA work?

You can save up to £4,000 of your ISA allowance in a Lifetime ISA each year. This is calculated from the start of the tax year, starting 5 April.

You’ll receive a government bonus of 25% of your balance every year, up to a total of £1,000 per tax year. If you top up your Lifetime ISA on a monthly basis then the government bonus will be claimed for you for each month that you add to your ISA savings. This means that you’ll receive the maximum bonus of £1,000 regardless of whether you invest your savings as a lump sum or in monthly instalments, as long as the total paid by the end of the tax year doesn’t exceed the maximum allowance of £4,000.

How can I withdraw from my Lifetime ISA penalty-free?

A 25% government withdrawal charge will be applied if you withdraw your LISA savings for any reason other than to purchase your first home or for your retirement, after the age of 60.

As part of the government’s Coronavirus response, the 25% withdrawal charge has been temporarily reduced to 20% between 6 March 2020 and 5 April 2021.

If you use your Cash Lifetime ISA to help save for your first home, then you’re able to withdraw your money to put it towards this without penalty. To avoid the withdrawal charge, you also need to have made your opening deposit into your LISA at least 12 months before you take any money out.

If you’ve opened your Lifetime ISA to help you save for retirement, you can access the money without any penalty as soon as you turn 60 years old. 

What are the main differences between a Help-to-Buy ISA and a Lifetime ISA?

Although both accounts can be used to help you buy your first home and they both offer the same 25% government-paid bonus on your savings, there are some variances between the two:

  • You can save up to £4,000 per annum in a Lifetime ISA, whilst the Help-to-Buy ISA has a smaller allowance of £2,400 (£3,400 in the first year).
  • You can’t use the Help-to-Buy ISA to save for retirement, whereas the Lifetime ISA can be used for either.
  • The bonus on the Lifetime ISA is paid monthly, whereas the bonus from the Help-to-Buy ISA needs to be claimed by your solicitor between the exchange and completion on your first house purchase.

Learn more about how the Lifetime ISA works and check whether you are eligible to open one, with our detailed guide on what is a Lifetime ISA?

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