Lifetime ISAs (LISAs) can be opened by anyone aged between 18 and 39 in the UK, after that you’ve missed the boat. The attraction of these investment vehicles is that you can save up to £4,000 a year in them, towards say your first home or retirement (or both). Then, the government adds a cash bonus of up to £1,000 a year on top – tax-free!
Unlike a personal pension, you can access the funds in a LISA earlier than retirement age. You could access the funds when you purchase your first home, say to fund the deposit. You can keep saving in the LISA after you buy your first home and save up for retirement and access it after you hit 60, which is younger than the national retirement age.
How does a Lifetime ISA work?
- The bonus is paid every year you save something in to your LISA, until you hit age 50.
- The bonus is paid monthly (if you’ve contributed that month) and takes between four and nine weeks to arrive.
- You only get the bonus on contributions, not cash interest or investment growth.
- Once in your account the bonus is counted just like the rest of your savings, so you’ll get interest on it too (or investment growth/loss).
- The maximum bonus is £33,000 if you open it at 18, and max it out until you hit 50 (unless you’re born on 6 April, when the max is £32,000).
- Under the normal LISA rules, you can take some or all of your cash out of a LISA before age 60 even if you’re not buying a property – but you’re charged 25% of the amount withdrawn.
Source: Money Saving Expert (MSE)
What if I already have an ISA, can I transfer funds to a LISA?
Those of you who already have an ISA and are between the ages of 18 and 39 can ask LISA providers if they will accept a transfer from your ISA into your new Lifetime ISA. However, be aware that you will only be able to transfer £4,000 from other ISAs into the LISA in any one tax year.
What if I have a Help to Buy ISA, how does that compare to a LISA?
The Help to Buy ISA scheme closed to new applications on 30 November 2019. If you opened your account before that date then you can continue to save into your Help to Buy ISA until November 2029.
While you can still hold both accounts (if you meet the criteria), you can only benefit from the bonus on one of them to buy your first home, the government bonus on a Help to Buy ISA must be claimed by 1 December 2030, according to Skipton Building Society.
Below Skipton has produced a table to compare the two ISAs, plus how to transfer a Help to Buy ISA to Skipton’s Lifetime Cash ISA.
| Lifetime ISA | Help to Buy ISA | |
|---|---|---|
| Who can open an account? | Anyone aged 18 to 39 | No longer available for new applications |
| Amount you can save per year | Up to £4,000 | £2,400 until November 2029 |
| Amount you can save per month | No restrictions | £200 |
| Maximum bonus | £32,000 (over 32 years) assuming a maximum contribution each year and the account is opened at the age of 18 | £3,000 |
| Bonus paid | Paid monthly on each month’s deposits until the age of 50 | Added to the account balance on completion of mortgage |
| Home buying restrictions | Can be used for a first home with a purchase price of up to £450,000 | Can be used for a first home up to the purchase price of £250,000 (£450,000 in London) |
| When can you use the funds towards buying your first home? | 12 months after your first payment into the account. | Once you have saved £1,600. The government bonus must be claimed by 1 December 2030. |
| Can you withdraw money if not for your first home? | Yes, after the age of 60 but if earlier you will incur a government withdrawal charge^. | Yes at any time, you just don’t get the bonus. |