A Lifetime ISA (LISA) is one of those products that sounds almost too good to be true: you save money, and the government tops it up by 25%. Free cash is always tempting. But as with most things in the personal-finance world, the small print matters, a lot.
Here’s a simple breakdown of how it works, and whether it actually suits what you’re trying to do.
Who Can Open a Lifetime ISA?
You can open a LISA if you’re aged 18 to 39, and once it’s open you can keep paying into it until you’re 50. You can save up to £4,000 per tax year, and every penny counts towards your overall ISA allowance of £20,000.
The big perk is the 25% government bonus, meaning you can get up to £1,000 free each year just for saving or investing. You’ll receive this bonus on contributions up until age 50, after which payments no longer qualify for the top-up. Everything inside grows tax-free – interest, growth, dividends, the lot.
Sounds incredible… but whether it’s actually worth it depends entirely on what you’re saving for.
Using a LISA for a House Purchase
A LISA can be used to buy your first home, as long as the property is £450,000 or less and you’re buying it with a mortgage. Those two rules alone immediately rule out a lot of people depending on where they live, especially major cities.
If you fall outside those limits – buying outright, going over £450k, or not a first-time buyer, the LISA doesn’t help you at all. In fact, it hurts you, because any withdrawal for a non-qualifying reason comes with a 25% penalty. And that penalty is nasty: it doesn’t just take away the bonus, it actually takes a bit of your own money too.
Compared to the old Help to Buy ISA, the LISA usually wins thanks to the higher contribution limit (£4,000 vs £2,400). But only if your plans fit neatly inside the LISA rules. For anyone flirting with the £450k mark, or not 100% sure they’ll buy with a mortgage, the LISA becomes a risk rather than a benefit.
In short:
Great for first-time buyers who definitely fit the criteria. Not great for anyone who might fall outside the box later on.
Using a LISA for Later Life
If you’re not using it for a house, the Lifetime ISA becomes a long-term retirement tool. You can only take your money out from age 60, at which point everything – your contributions, your growth, your bonus, is yours, tax-free.
But again, anything you withdraw before 60 for a non-house reason gets hit with the 25% penalty, including if you simply change your mind or want to transfer to a normal ISA. So unless you’re absolutely certain you won’t need the cash for 20, 30, or 40 years… this isn’t a flexible option.
The big question:
Is that 25% yearly bonus worth locking your money away for decades? For some people, yes. For many others, the lack of flexibility cancels out the benefit.
So… Is a Lifetime ISA Worth It?
A 25% bonus is incredibly attractive, and on paper the LISA looks unbeatable. But unless you’re specifically saving for a qualifying property purchase or you’re comfortable locking the money away until age 60, the penalties and restrictions can easily outweigh the perks.
There are also rumours that the upcoming Budget may tweak some of the LISA rules, so we’ll update this article the moment anything changes.
