Lifetime ISAs

A Lifetime ISA is a tax-advantaged savings account that helps you save for your first home or retirement, with the government adding a 25% bonus to your contributions. You can save up to £4,000 per year and receive up to £1,000 in government bonuses annually, but strict withdrawal rules apply if you access your money for other purposes.

What is a Lifetime ISA?

A Lifetime ISA (often called a LISA) is a type of Individual Savings Account designed for two specific purposes: buying your first home or saving for retirement. You can save up to £4,000 each year, and the government adds a 25% bonus to your contributions, giving you up to £1,000 in free money annually.

You can hold your savings as cash, stocks and shares, or a combination of both. The £4,000 annual limit counts towards your overall ISA allowance, which is £20,000 for the 2026 to 2027 tax year.

Eligibility requirements

To open a Lifetime ISA, you must be 18 or over but under 40 years old. You must make your first payment before you turn 40.

You also need to be either:

• Resident in the UK, or
• A member of the armed forces or a crown servant (such as diplomatic or overseas Civil Service) or their spouse or civil partner, even if you don't live in the UK

If you're unsure about your residence status, HMRC provides guidance on UK residence and tax.

How the government bonus works

For every £4 you save, the government adds £1. This 25% bonus applies to contributions up to £4,000 per year, meaning the maximum annual bonus is £1,000.

You can continue making contributions and receiving the bonus until you turn 50. After 50, you cannot add more money or earn further bonuses, but your account stays open and continues to earn interest or investment returns.

Using your Lifetime ISA to buy your first home

You can use your Lifetime ISA savings and the government bonus to buy your first home, provided you meet all these conditions:

• The property costs £450,000 or less
• You buy at least 12 months after making your first payment into the Lifetime ISA
• You use a conveyancer or solicitor to handle the purchase (your ISA provider pays the funds directly to them)
• You're buying with a mortgage

You cannot use your Lifetime ISA if you're getting a private mortgage from a relative (parent, grandparent, child, grandchild or sibling), someone married to or in a civil partnership with your relative, your spouse or civil partner, or relatives of your spouse or civil partner.

Buying with a partner

If you're buying with someone else who also has a Lifetime ISA, you can both use your savings and government bonuses. Both of you must be first-time buyers and meet all the conditions above.

If you have a Help to Buy ISA

If you have both a Help to Buy ISA and a Lifetime ISA, you can only use the government bonus from one of them towards buying your first home. You can transfer money from a Help to Buy ISA to a Lifetime ISA without penalty, but transferring from a Lifetime ISA to a Help to Buy ISA triggers the 25% withdrawal charge.

Saving for retirement

You can withdraw your savings when you turn 60 or over without any charges. Your account remains open after you turn 50, continuing to earn interest or investment returns, even though you can no longer contribute.

If you transfer your Lifetime ISA to another type of ISA before turning 60, you'll pay the 25% withdrawal charge.

When you die, your Lifetime ISA ends on the date of death. There is no charge to withdraw the funds or assets from your account.

Withdrawal charges

You can only withdraw money without a charge in three situations:

• You're buying your first home (meeting all the conditions above)
• You're aged 60 or over
• You're terminally ill with less than 12 months to live

Any other withdrawal is unauthorised and incurs a 25% charge on the amount withdrawn.

How the withdrawal charge works

The 25% charge applies to the total amount you withdraw, including both your original savings and the government bonus. This means you can end up with less than you originally saved.

Example 1: You save £800 and receive a £200 government bonus, giving you £1,000. If you make an unauthorised withdrawal of the full amount, you pay a 25% charge on £1,000 (£250), leaving you with £750 — £50 less than you originally saved.

Example 2: If you need £120 to pay a bill, you must withdraw £160. After paying the 25% charge of £40, you receive £120.

This withdrawal structure means the penalty effectively returns the government bonus and takes slightly more, discouraging withdrawals for purposes other than your first home or retirement.

Sources

• Lifetime ISA
• Individual Savings Accounts
• Help to Buy: ISA
• Tax on foreign income
• Plan your retirement income

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.