What is a Lifetime ISA?
An ISA to help you save for your first home or later life
Important information - This isn’t personal advice. If you’re unsure what’s right for you, you should seek financial advice. If you save into a Lifetime ISA instead of a pension, you could miss out on employer contributions, and your entitlement to certain means-tested state benefits could be affected. Investments can go down as well as up in value, so you could get back less than you put in. You can withdraw money free of charge from a Lifetime ISA to make an eligible property purchase, or from age 60. Other withdrawals will usually mean a 25% government charge, so you could get back less than you put in. Tax rules can change and their benefits depend on your circumstances.
Lifetime ISA basics
A Lifetime ISA is a tax-efficient savings or investment account. You can use one to save and invest for your first home or later life.
Some providers will only accept cash deposits while others allow you to invest your Lifetime ISA in the stock market.
ISA stands for Individual Savings Account. And the Lifetime ISA is one of the types of ISA, the others are Cash ISAs, Stocks and Shares ISAs and Innovative Finance ISAs.
In this video, we explain the key benefits of using a Lifetime ISA and how you can invest for your future or first home.
The benefits of a Lifetime ISA
Like other types of ISA, any money held within the Lifetime ISA will not be subject to UK income or capital gains tax.
But a major benefit of the Lifetime ISA is that the government will pay in an extra 25% on top of what you pay in. You can put up to £4,000 into a LISA per tax year so you can get a bonus of up to £1,000 per tax year.
Assuming the allowance and bonus stayed the same, this means you could get £8,000 free from the government if you paid in the full amount for 8 years.
Bonuses received from the Lifetime ISA
| Time invested | Total you’ve paid in | Government Bonus total | Total amount added to your Lifetime ISA |
|---|---|---|---|
| Year 1 | £4,000 | £1,000 | £5,000 |
| Year 2 | £8,000 | £2,000 | £10,000 |
| Year 5 | £20,000 | £5,000 | £25,000 |
| Year 10 | £40,000 | £10,000 | £50,000 |
| Year 20 | £80,000 | £20,000 | £100,000 |
And that’s before any interest from cash, or potential growth from investments. By saving or investing you could end up with more than this. Though this table doesn’t take into account inflation which eats into the future spending power of your money.
The bonus is paid into an HL Lifetime ISA account within 4 to 9 weeks of your contribution. You don’t have to wait until the end of the year to make it work harder for you. You can earn interest on cash or invest it once it’s paid.
You can get this bonus each tax year you make a contribution, so it’s well worth considering making the most of it if you can.
Use our calculator to see how much government bonus you could get.
Who can open a Lifetime ISA?
You can open one if you’re between 18 and 39 years old. You also need to be UK resident for tax purposes.
You can then continue to pay in and get the government bonus until you’re 50 years old.
After you turn 50 the account will stay open, but you won’t be able to add more money to it.
How the Lifetime ISA allowance works
You can pay in up to £4,000 in this tax year to a Lifetime ISA. The government bonus will be added to this on top.
This means if you put in £4,000 you could invest £5,000 after receiving a bonus of £1,000.This £4,000 allowance also counts towards the overall ISA allowance (£20,000 this tax year). You’ll need to remember this if you’re paying into other types of ISA like a Cash ISA (including Help to Buy ISAs), Stocks and Shares ISA, or Innovative Finance ISA. Tax rules change and any benefits depend on personal circumstances.
How many Lifetime ISAs can I have?
You can have more than one Lifetime ISA, but you can only pay into one Lifetime ISA in the same tax year. So, you can't pay into Lifetime ISAs with two different providers in the same tax year.
When can you take money out of a Lifetime ISA?
You can withdraw your money tax free when you’re ready to use it for an eligible property purchase, after you turn 60, or if you are terminally ill.
You can take it out at other times too, but you’ll face a government withdrawal charge of 25% meaning you might get less back than you put in.
Using your Lifetime ISA
Using a Lifetime ISA to buy a home
You need to be a first-time buyer and it must have been 12 months since the first payment into the Lifetime ISA before you can use the money to buy a home without facing a withdrawal penalty.
The property must be in the UK with a purchase price of £450,000 or less. It will need to be your main home or become your main home as soon as it’s ready if it’s still being built.
You’ll also need to be buying the house with a mortgage, regulated home purchase plan or through a shared ownership arrangement.
To use your Lifetime ISA with HL to purchase your first home you’d need to send us the Lifetime ISA home purchase form telling us about your conveyancer and how much you want to withdraw. Once everything is ready, we’ll pay the amount requested directly to your conveyancer.
If you don’t meet the conditions for an eligible property purchase , you can still use your Lifetime ISA money towards buying a property. But you’d have to pay the government withdrawal charge, which means you could get back less than you put in. You could instead use it for later life.
Using a Lifetime ISA for retirement
You can use a Lifetime ISA as part of your retirement planning. You can take the money out after you turn 60 without any penalty.
If you’re eligible for a workplace pension this should be your first port of call for retirement savings. If you’re not, or if your employer is already making pension contributions at the maximum level, it may be more tax efficient to make contributions into a LISA. The option you choose will depend on your personal circumstances.
Investments you can hold in a Lifetime ISA
Your investment choice will probably depend on when you need to use the money. If you’re planning to buy a first home in less than five years, then it might be better to hold cash instead of investing it.
But if you're planning to invest for longer than five years, you might want to think about investing in the stock market.
If you choose to invest with HL, you can choose investments including:
- Funds
- UK and international shares
- Investment Trusts
- Corporate Bonds and Gilts
- ETFs
You can mix and match investments within the account and aren’t restricted on the number of investments you can hold. This allows you to smartly spread your investments and diversify your portfolio.
But remember, unlike cash, investments can go up and down in value. So you could get back less than you put in if you choose to invest.
The HL Lifetime ISA
Wide investment choice and expert research
Choose from thousands of investments and our latest fund ideas. Our research can help you decide where to invest and build your own portfolio, or you can ask for personal financial advice if you need it.
Free to set up, and a maximum annual fee of 0.25%
No charge to buy or sell funds, or to stop or start payments. Funds also have their own annual charge and dealing fees for shares are capped.
Easy and simple to manage
Check your Lifetime ISA on the go, online or with the HL app.
Excellent staff with prompt service on the phone.
MRS BLAND, Stafford
Awards
BEST BUY LIFETIME ISA
Boring Money Awards 2023
BEST BUY ISA
Boring Money Awards 2023
BEST ONLINE STOCKBROKER
The Personal Finance Awards 2022/2023
Help and support
If you have any questions about the HL Lifetime ISA, you can speak to one of our client support experts by calling 0117 900 9000.