Lifetime ISAs
Save or invest towards a first home or later life while receiving a government bonus on eligible contributions. Lifetime ISAs have specific eligibility, contribution and withdrawal rules that affect how and when the money can be used.
What is a Lifetime ISA?
A Lifetime ISA is a type of ISA designed to help eligible adults save or invest towards buying their first home or for later life. The government adds a 25% bonus to eligible contributions, subject to the Lifetime ISA contribution limit and other rules.
A Lifetime ISA can hold cash or investments. The account has specific eligibility and withdrawal rules, and taking money out for a reason other than a qualifying first-home purchase, after age 60 or certain other permitted circumstances can normally result in a withdrawal charge.
Learn how Lifetime ISAs work →How does a Lifetime ISA work?
A Lifetime ISA combines the ISA tax wrapper with a government bonus. You contribute your own money, the government adds a bonus to eligible contributions, and the money can be held in cash or invested depending on the account.
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01
Open a Lifetime ISA
You must meet the Lifetime ISA age rules when opening the account. Once opened, you can continue contributing while you remain eligible under the rules.
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Pay money into the account
You can contribute up to the Lifetime ISA limit each tax year. These contributions also count towards your overall ISA allowance for that year.
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03
Receive the government bonus
The government adds a 25% bonus to eligible contributions. For example, contributing £4,000 would result in a £1,000 government bonus, subject to the Lifetime ISA rules.
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04
Hold cash or invest the money
Depending on the Lifetime ISA you choose, the money can be held as cash and earn interest or invested in assets whose value can rise or fall over time.
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Use the money under the withdrawal rules
Money can be withdrawn without the Lifetime ISA withdrawal charge for a qualifying first-home purchase, from age 60, or in certain other permitted circumstances. Other withdrawals normally result in a withdrawal charge.
The withdrawal charge can mean receiving back less than you contributed yourself when money is taken out for a non-qualifying reason, so the withdrawal rules are an important part of how a Lifetime ISA works.
Can you lose money with a Lifetime ISA?
Yes, in some circumstances. Whether the value of a Lifetime ISA can fall depends partly on whether it holds cash or investments, while making a non-qualifying withdrawal can also leave you with less than you originally contributed.
Investment values can fall
If your Lifetime ISA holds investments, their value can rise or fall with financial markets. Poor investment performance could therefore reduce the value of the account, and you may receive back less than you invested.
The withdrawal charge can reduce your own contributions
Withdrawals that do not meet the Lifetime ISA rules normally face a 25% government withdrawal charge. Because the charge applies to the amount withdrawn after the government bonus has been added, it can remove the bonus and some of the money you originally contributed.
A simple example
Suppose you contribute £4,000 and receive a £1,000 government bonus, giving you £5,000 before any interest or investment changes. If you then make a non-qualifying withdrawal of the full £5,000 and a 25% withdrawal charge applies, £1,250 would be deducted, leaving £3,750. That is £250 less than the £4,000 you originally contributed.
A cash Lifetime ISA does not normally fall because of investment-market movements, while an investment Lifetime ISA can. Separately, the withdrawal charge means a non-qualifying withdrawal can leave you with less than the amount you contributed yourself.
What are the risks of a Lifetime ISA?
Lifetime ISAs have risks that come from both the type of assets held and the rules governing the account. The risks can therefore differ depending on whether you choose cash or investments and when you eventually need to access the money.
Investment risk
If your Lifetime ISA holds investments, their value can rise or fall over time. There is no guarantee that you will receive back the amount invested, and a fall in value could be particularly important if you need the money for a first-home purchase at a particular time.
Inflation risk
Money held in a cash Lifetime ISA can lose purchasing power if the interest earned does not keep pace with inflation. This can reduce the real value of savings being built over a long period.
Withdrawal charge risk
Taking money from a Lifetime ISA for a reason that does not qualify for a charge-free withdrawal normally results in a 25% withdrawal charge. This can leave you with less than the amount you originally contributed yourself.
Your plans may change
A Lifetime ISA is designed around specific uses of the money. If you no longer intend to make a qualifying first-home purchase or your circumstances change before age 60, accessing the money earlier for another purpose can trigger the withdrawal charge.
When might a Lifetime ISA be useful?
A Lifetime ISA is designed for two specific purposes: buying a first home or building money for later life. Whether it is useful depends on your eligibility, when you expect to need the money and whether you are comfortable with the restrictions on other withdrawals.
You are saving for your first home
A Lifetime ISA can be used towards an eligible first-home purchase, allowing your own contributions to be supplemented by the government bonus while you build your deposit.
You are building money for later life
A Lifetime ISA can also be used to save or invest for later life, with charge-free withdrawals normally available from age 60.
You can leave the money for a qualifying purpose
The account may be more useful when you are confident that the money can remain within the Lifetime ISA until it is used for an eligible first-home purchase or accessed under another charge-free withdrawal rule.
You want to save or invest
Depending on the provider, a Lifetime ISA can hold cash or investments. This allows the account to be used in different ways depending on your timeframe and willingness to accept investment risk.
What are the main trade-offs?
A Lifetime ISA offers a government bonus and tax-free saving or investing, but those benefits come with specific rules about contributions and when the money can be accessed without a withdrawal charge.
Potential benefits
25% government bonus
The government adds a 25% bonus to eligible contributions, increasing the amount available for a qualifying first-home purchase or later life.
Tax-free saving or investing
Interest, investment income and capital gains generated within a Lifetime ISA are free from UK Income Tax and Capital Gains Tax.
Cash or investment options
Depending on the provider, money can be held in cash or invested, allowing different approaches according to your timeframe and willingness to accept investment risk.
Things to consider
Withdrawals are restricted
Taking money out for a reason that does not qualify for a charge-free withdrawal normally results in a 25% withdrawal charge, which can leave you with less than you originally contributed.
Contributions are limited
Lifetime ISA contributions have their own annual limit and also count towards your overall ISA allowance, limiting how much can receive the government bonus each tax year.
The account is designed for specific goals
The rules are centred on eligible first-home purchases and later life. If your plans or circumstances change, accessing the money for another purpose can result in the withdrawal charge.
A Lifetime ISA exchanges some flexibility over how and when you can use the money for a government bonus and tax-free saving or investing. Understanding the withdrawal rules is therefore just as important as understanding the potential benefits.
What should you compare between Lifetime ISAs?
Lifetime ISAs can differ considerably between providers, particularly because they can hold either cash or investments. The interest rate, investment options, costs and practical account features can all affect how the money builds over time.
Cash or stocks and shares
Consider whether you want to hold cash, invest, or potentially move between the two over time. Cash and investments have different risks and potential outcomes, which can be particularly important when working towards a first-home purchase.
Interest rates
For a cash Lifetime ISA, compare the interest rate offered and whether it is fixed or variable. The rate determines how much interest your savings can earn in addition to the government bonus.
Investment choices
For a stocks and shares Lifetime ISA, compare the investments available. Providers can differ in the funds, shares and other eligible investments they offer, as well as whether ready-made investment options are available.
Fees and charges
Investment Lifetime ISAs can have platform fees, fund charges, dealing costs and other fees. These costs reduce the investment return that remains within the account and can vary significantly between providers.
Transfer options
Check whether the provider accepts transfers from existing Lifetime ISAs and what conditions apply. The formal ISA transfer process should be used when moving existing Lifetime ISA money between providers.
Provider features and service
Minimum contributions, regular-payment options, account management, investment tools and customer support can differ between providers. These practical features may matter when the account will be used over a number of years.
The government bonus follows the Lifetime ISA rules regardless of provider, but the account holding your money can still differ substantially. Comparing the type of Lifetime ISA, potential returns, investment choices, costs and provider features can help you understand those differences.
How is a Lifetime ISA protected?
The protection available for a Lifetime ISA depends partly on whether the account holds cash or investments. The ISA wrapper and government bonus do not themselves guarantee the value of the money.
Cash Lifetime ISAs
Eligible cash deposits can receive FSCS protection
If a cash Lifetime ISA is held with a UK-authorised bank, building society or credit union, eligible deposits can be protected by the Financial Services Compensation Scheme if the firm fails. The current deposit protection limit is £120,000 per eligible person, per authorised firm.
Investment Lifetime ISAs
Investment protection works differently
If an authorised investment firm fails and cannot meet its obligations, FSCS protection may apply to certain eligible claims up to the applicable investment protection limit. This protection does not cover investments simply falling in market value or performing poorly.
Withdrawal charge
FSCS protection does not cover the Lifetime ISA withdrawal charge
The Lifetime ISA withdrawal charge is part of the account rules rather than a loss caused by a financial firm failing. FSCS protection does not compensate you for a withdrawal charge that correctly applies to a non-qualifying withdrawal.
The protection available therefore depends on what the Lifetime ISA holds and the circumstances of any loss. Cash deposit protection and investment protection cover different situations, while neither removes investment risk or the consequences of the Lifetime ISA withdrawal rules.
Want to explore other types of ISA?
Lifetime ISAs are designed specifically for eligible first-home purchases or later life. Other types of ISA work differently and can be used for holding cash, investing more generally or building money for a child.
Cash ISA
Hold cash savings within an ISA and earn interest without paying UK Income Tax on that interest.
Explore Cash ISAs →Stocks & Shares ISA
Hold eligible investments within an ISA, with the value of those investments able to rise or fall over time.
Explore Stocks & Shares ISAs →Junior ISA
Save or invest for a child within a dedicated ISA, with the money normally becoming available to them when they turn 18.
Explore Junior ISAs →