Lifetime ISA
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Boost your deposit with a free 25% bonus when you open a Lifetime ISA.
You can save up to £4,000 a year, resulting in a huge £1,000 annual bonus! A typical savings account won’t give you anywhere near that return.
Bonuses are reserved for first-time homebuyers or retirement savers. You will lose the bonus if you withdraw the money for any reason other than purchasing your first home or retirement (age 60 onwards). In the event of terminal illness, an exception can be made.
Who is eligible for a Lifetime ISA?
Any UK resident aged between 18 and 39 can open a Lifetime ISA. As long as you open the account before your 40th birthday, you can continue putting money into it until the day before your 50th birthday. After that, the account will remain open; you just can’t contribute to it anymore.
If you are using the account to boost your deposit for your first home, you can’t previously have owned property anywhere in the world.
The home you buy must be:
- in the UK
- purchased for £450,000 or less
- the only property you will own
- where you intend to live
- bought with a mortgage
It doesn’t need to be a new build – you can use the Lifetime ISA towards an older property.
You can combine the Lifetime ISA with other home-buying schemes, subject to meeting the eligibility criteria.
Are there any restrictions with a Lifetime ISA?
You can save up to £4,000 each tax year in a Lifetime ISA. The amount you put into this account counts towards your annual ISA allowance. This is the amount you can save across all types of ISA before being subjected to tax. The limit now (2023/24) is £20,000 a year.
Funds can be withdrawn once the account has been open for a minimum of one year. When you’re just getting started saving, this is okay, but not when you’re planning to buy soon.
You can’t have a joint ISA since it stands for ‘individual savings account’. That’s even better because if you’re buying with your partner, you can each have one. Your partner may not be a first-time buyer, but you can still open an account and get the bonus.
You can use the account to save for your first home or for retirement. You cannot finance your first home purchase with both a Lifetime ISA and a Help to Buy ISA. (New Help to Buy ISAs can’t be opened anymore anyway, but you may have one already that you haven’t used yet.) However, you could then use your Help to Buy ISA for your first home and your Lifetime ISA for your retirement.
How is the bonus paid?
The bank will pay it into your account each month. You can then earn interest on it too.
When you are ready to use the funds as a deposit, your solicitor will send you a declaration form from HMRC. The document confirms that you are using the funds to buy your first home and that you meet the criteria to receive the bonus. Your solicitor can claim the funds on your behalf when you return this form to them.
Does a Lifetime ISA affect eligibility for benefits?
A Lifetime ISA is considered a savings account and therefore may affect your eligibility.
A Lifetime ISA is also an asset if you run into financial difficulties, and debt recovery agencies may require you to contribute the money to your arrears.
Pros and cons of Lifetime ISAs
Pros
- Provides a nice bonus plus interest
- The bonus is paid monthly so you benefit from compound interest
- Both the interest and the bonus are tax free
- The allowance can be used all at once, if you pay in a lump sum, or you can pay a bit in each month; it’s flexible
- Limited to saving a maximum of £4,000 a year in this account
- Your Lifetime ISA allowance counts towards your annual ISA allowance, so if you max out this account you’re limited to £16,000 to put in other ISAs
- If you use a Lifetime ISA towards your first home, you can’t then use one to save for retirement
- There’s a big penalty to pay if you withdraw the money for any reason other than buying your first home or retirement
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