How does a Lifetime ISA work?

The LISA is so much more than a savings account that shares a name with a Simpsons character. You can make up to £4,000 in contributions a year (tax-free) into your LISA and the government will offer you a 25% bonus on top of the money you put into the account. With any luck, a few years down the line you may have built up a healthy pot to put towards your first home.

What’s the catch?

As with any financial product, there are conditions and requirements you’ll have to meet in order to be eligible. For example:

• Life begins at 40, but that’s not the case with a Lifetime ISA. You’ll have to open an account between the ages of 18 and 39.
• The amount you receive in government bonuses is capped at £33,000.
• You can add money until you’re 50, but if you’re withdrawing the funds for retirement purposes (rather than buying a property), you can only do this after the age of 60 (unless you fancy paying a 25% charge).
• Your Lifetime ISA needs to be open for more than 12 months before you can use it to buy a property.

When did the Lifetime ISA start?

Lifetime ISAs were launched back in April 2017, basically as a long-term successor to the Help to Buy ISA, which is now closed to new applicants. Takeup was initially slow, but Lifetime ISAs have got progressively more popular over the years; in fact, a record 50,000+ people used the scheme to buy a property in the year to April 2022.

Can I transfer a Help to Buy ISA to a Lifetime ISA?

Yep – you can transfer money from a Help to Buy ISA into a Lifetime ISA. But remember, you can still only contribute up to £4,000 a year into the account. 

Any Help to Buy ISA bonuses must be claimed by 1st December 2030, so if you’re planning to make the transfer, you’ve got the rest of the roaring twenties (and a bit) to make a decision.

How many Lifetime ISAs can I have?

You can have more than one Lifetime ISA at any given time. However, you can only pay into one account in each tax year.

When does the Lifetime ISA bonus get paid?

You’ll receive your Lifetime ISA government bonus between four and eight weeks after you make contributions to the account. If that sounds confusing, it’s because your bonus is paid at the end of each month, but is based on the contributions you made in the previous month’s bonus window (which runs from the 5th of the month to the 4th of the next month). For example, money you deposit on 5th January would result in a bonus at the end of February.

Types of Lifetime ISA

There are two types of Lifetime ISA, and these are the terms you might come across:

• Cash Lifetime ISAs – a savings account where you can deposit money up to a certain limit (£4,000 a year tax-free) towards your first home (or retirement).
• Stocks and Shares Lifetime ISAs – an investment account where you can build up savings and investments (such as stocks and shares or bonds) to fund your first property (or retirement)

Which banks offer Lifetime ISAs?

We’re not here to vouch for any bank (especially not the Bank of Mum & Dad) but a cursory look online will tell you which banks offer Lifetime ISAs. For cash Lifetime ISAs, examples include Moneybox, Beehive Money and Skipton Building Society. For stocks and shares Lifetime ISAs, AJ Bell and Hargreaves Lansdown are two LISA providers you might want to research.

Is a Lifetime ISA worth it?

Now that the Help to Buy ISA has closed for applications, some first-time buyers have welcomed Lifetime ISAs as the new sheriff in town. But if you have a Help to Buy ISA already, you can still pay into the account until November 2029, so you may be weighing up which scheme you’d rather use.

Every buyer has different circumstances, so here are some questions to consider regarding whether to take the Lifetime ISA plunge.

• How quickly do you want to move? Your Lifetime ISA will need to be open for 12 months before you can use it, whereas with a Help to Buy ISA, you simply need to deposit £1,600 (which can be done in 3 months). 
• How certain are you that you’ll buy? The advantage of a Lifetime ISA is that you can make bigger annual contributions (£4,000 versus £2,400) and there’s a much bigger total max bonus (£33,000 versus £3,000). However, if you’re not sure whether you’ll buy a property, bear in mind that you’ll be penalised for taking out funds from a Lifetime ISA before the age of 60, whereas with a Help to Buy ISA, you can withdraw your money at any time (while the scheme exists in some form).
• Where are you planning to buy? If you’re buying in the capital, both Help to Buy ISAs and Lifetime ISAs can be put towards properties worth up to £450,000. But outside the capital, the price limit for Help to Buy ISAs reduces to £250,000.

How to open a Lifetime ISA

To open a Lifetime ISA, it’s worth doing your homework on which provider you want to go with. Then depending on their application process, you may be able to open a Lifetime ISA online, then make a debit card contribution or set up a Direct Debit to start saving.

Want to suss out your spending power? Try our handy eligibility checker to see if Even can help you take your next steps towards home ownership.