Lifetime ISA? (A complete guide)

By HuutiMoney
Page last updated: 29/09/2022 | Next review date: 29/09/2024
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What is the Lifetime ISA?

The Lifetime ISA is a type of ISA which can be used for first-time buyers looking to get on the property ladder or retirement savings.

The Lifetime ISA allows you to put a maximum of £4000 away each year and receive a government bonus of up to £1000 a year( 25%).

The £4,000 you can put into your Lifetime ISA count towards your annual ISA limit which is currently £20,000.

Your Lifetime ISA can either be in a cash ISA or a stocks and shares ISA.

What you need to know about the Lifetime ISA

  • You must be between 18-40 years old & a Uk resident to open a LISA
  • You cannot open a joint Lifetime ISA(as is the case with any other ISA)
  • You can only withdraw your LISA ( penalty-free) before 60 to buy your first home
  • Your first home must be below £450,001 for you to use the Lifetime ISA
  • You must use a mortgage to purchase a property with the Lifetime ISA
  • You must be buying a property you intedn to live in and it canot be used for a buy-to-let property.
  • Your solcitor or conveyancer must act for you when you are making your property purchase. The Lifetime ISA bonus will be paid to them.
  • You will face a Government penalty of 25% if you withdraw your LISA before 60 and do not use it for a home
  • You can transfer your current ISA into your LISA and transfer your LISA out but you will have to pay the 25% charge for this if it is done before you are 60.
  • You can transfer money from your help to buy ISA to your Lifetime ISA but if you transfer money from your Lifetime ISA t your help to buy ISA you wil have tp pay the 25% penalty
  • Interest earned on your LISA as well as the 25% Government bonus is tax free
  • Money transferred into a Lifetime ISA from another ISA is also eligible for the government bonus.
  • You can use the Lifetime ISA to buy land for a self-builde proeperty as long as the property meets all the other rewuirements of the LISA scheme. If you are unsure if it does then you should consult with your solicitor.
  • If you close your LISA account within the 30 day cooling off period ( as you can within the consumer credit rights) you will noy be liable for any government withdrawal charge. You will also npt nbeeligibe for any bonus on any contribitions you made into the account.
  • You mayhave some fees and charges which are paid to your Lifetime ISA manager( the bank, investment platform or building society which manages your Lifetime ISA account). There will be no withdrawal charge for these charges.
  • There is no resriction on which stage of your property purchase which you can use your Lifetime ISA.
  • You can have both a Lifetime ISA and help to buy IS open at the same time but you can only use the bonus from one to buy a property.
  • If you use the Help to Buy ISA for the 25% bonus and you’d have to pay a penalty to use your LISA savings for a property. Though you’d still be able to use it (and any bonuses) for retirement savings.
  • If you use the LISA for the 25% bonus to buy a home and you won’t get the bonus with the Help to Buy ISA, but you can still keep and use the money plus the interest.
  • You can make partial withdrawals from your Lifetime ISA
  • You can continue to earn the annual bonus even after you have incurred a withdrawal penalty

Lifetime ISA FAQs

Who is eligible to open a Lifetime ISA?

You must be 18-39 years old and a UK resident to open a LISA. The only exception here is when you are a crown servant (for example, in the diplomatic service), the spouse or civil partner of a crown servant.

Who qualifies as a first time buyer?

A first time buyer is someone who does not own any property in the World. This includes property in a will, trust or as a result of a divorce.

The maximum house price you can purchase utilizing the LISA is £450,000. You can purchase a property with someone else on a LISA but the maximum property price does not double.

If the person is not a first-time buyer they will have tompay the withdrawal penalty but this will not affect your eligbility for the Lifetime ISA bonus. You can also use the LISA with other First time buyer schemes such as the Help to buy equity loan scheme.

Can I open my Lifetime ISA with other ISAs?

Yes you can as long as you don’t exceed your current ISA contribition allowance for the tax year which currently stands at £20,000. You can however not use the Lifetime ISA bonus for both when purchasing a home. 

Depending on the type of ISA, you may not be able to conteibute to two ISA accounts which have the same ISA type in a single tax year. E.g you cant contribute to two cash ISAs in the same year.

You will have to pick which one you contribute toand any funds withdrawn from the other types of ISA products mayncur a withdrawal penalty.

When can I withdraw money from my Lifetime ISA?

You can withdraw your money before the age of 60 as usual although you will face a Government withdrawal penalty of 25% or you can withdraw it when buying a first home under £450,000 without any penalty.

 The property you are buying with the lfetime ISA must be a mortgaged property and you can only utilize the LISA 12 months after opening it with your solicitor acting on your behalf to ensure your LISA bonus is activated and LISA account is closed without any penalty. Your solcitor or conveyancer will be paid the Lifetime ISA for your home purchase. If your property purchase is taking more than 90 days you can contact HMRC for an extension.

If you fail to buy a property you can return all the funds and the interest missed will be paid and it will not be classed as a withdrawal hence no withdrawal penalty will be charged.

You can of course always withdraw your money after age 60 and above with no penalty whatsoever.

The governments withdrawal charge is there to encourage people to save for the lng term and deter people from attempting to misuse the Lifetime ISA. The charge serves to recover the government bonus as well as place a charge on the original savings.

Example: If you have contrubuted £10,000 to your Lifetime ISA and then get gpvernment bonus of £2,500 on that £10,000 you will now have £12,500.

A Lifetime ISA  withdrawal penalty is on your ISA balance plus the bonus so a 25% withdrawal penalty will be charged on the £12,500. This will be a total of £3,125. Once the penalty is deducted from £12,500 you will be left with £9,375 which is a loss of £625 from your total £10,000 contribution.

If you must withdraw money from your Lifetime ISA then you must consider what the effects of withdrawing the money means for you.

The cost of early withdrawal on your Lifetime ISA:

YOUR CONTRIBUTIONS£20,000
Government bonus(25%)£4,000
Total value£24,000
25% Government penalty£6,000
Total left£18,000

A withdrawal charge won’t apply if you’re:

  • using it towards a first home
  • aged 60
  • terminally ill with less than 12 months to live
  • transferring to another Lifetime ISA with a different provider
  • If you die, your Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.

How is the Government bonus paid on my Lifetime ISA?

Your Lifetime ISA manager will claim the bonus for you and it will be added automatically to your Lifetime ISA account. Your Lifetime ISA manager is the bank, building society or asset manager where you open your Lifetime ISA.

The Government bonus will be paid monthly from April 2018 and this will allow you to earn more interest on the cumulative deposits. This means you will earn more due to compounding.

If you are using your Lifetime ISA to buy a house or withdrawing it when you are over 60 then your bonus will already be in your LISA account.

If you withdraw money from your Lifetime ISA before you have received the government bonus you will still be entitled to the bonus on your contributions. Your Lifetime ISA manager will claim the bonus in the same way as if the funds had not been withdrawn and pay that bonus to you (either into your Lifetime ISA or directly to you).

How long can I contribute to the Lifetime ISA?

Contributions to your LISA end when you turn 50. You will not be able to contribute any further beyond this point but your account will stay oen and continue to earn interest or investment returns. These returns will continue to be tax free. You will also not be able to earn the 25% bonus once you turn 50. The bonus payments will stop at this age. 

Lifetime ISA providers

A far a we could see there are currently 13 Lifetime Isa providers on the market whom offer either cash or stocks & shares ISAs as a medium to nvest in a Lifetime ISA.

Skipton Building Society cash Lifetime Isa   

Nottingham Building Society cash Lifetime Isa   

Newcastle Building Society cash Lifetime Isa   

The Share Centre stocks and shares Lifetime Isa   

Nutmeg stocks and shares Lifetime Isa   

Hargreaves Lansdown stocks and shares Lifetime Isa   

MoneyBox stocks and shares Lifetime Isa      

MoneyBox cash Lifetime Isa   

AJ Bell stocks and shares Lifetime Isa   

Foresters Friendly Society stocks and shares Lifetime Isa      

OneFamily stocks and shares Lifetime Isa      

Transact stocks and shares Lifetime Isa   

Metfriendly stocks and shares Lifetime Isa   

Unity Mutual stocks and shares Lifetime Isa

Lifetime ISA calculator

You may be able to use a lifetime ISA calculator to see what your potential returns would be if you invest in a Lifetime ISA but remember these are only indications and your real returns may not be the same.

Complaints

If you are having any issue with your Lifetime ISA then these are the parties you can complain to.

Complain about your Lifetime ISA

You should complain to your Lifetime ISA manager and if they don’t resolve your complaint to your satisfaction within 8 weeks you can then complain to the Financial Ombudsman service.

Complain about your conveyancer

If you are having issues with your conveyancer then you can complain to them. If you are not satisfied with their response then you can complain to the legal ombudsman.

In Scotland, you can contact the Scottish Legal Complaints Commission on 0131 201 2130.

In Northern Ireland, you can contact the Law Society of Northern Ireland on 028 9023 1614.

If your conveyancer is not a registered solicitor you should make a complaint to the Council of Licensed Conveyancers. You can email them at clc@clc-uk.org or call them on 0207 250 8465.

*As with all investing, your capital is at risk. Tax rules may change in the future. If you are unsure if a Lifetime ISA is a right choice for you, please seek independent financial advice. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. Please seek independent financial advice. *

In this brief guide, we discussed the Lifetime ISA. If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.