What is a Lifetime ISA?

A Lifetime ISA (also known as LISA) is a government provided product which allows you to save towards either buying your first property or retirement.

You can save a maximum of £4,000 a year, and this forms part of your £20,000 ISA allowance. The government provides a 25% bonus on top of the money you pay in. So if you invest the full £4,000 in one year the government will provide £1,000 into your LISA.

My LISA is one of my favourite investment products that I own. I hold my LISA with Nutmeg, check out my review of the Nutmeg LISA here. If you sign up for a Nutmeg LISA using this link and pay in £500 you will not pay any management fees for 6 months!

Can I Qualify for a Lifetime ISA?

In order to qualify for a Lifetime ISA you will need to :

  • Be aged between 18 to 40
  • Understand that the £4,000 annual limit is part of the £20,000 tax free ISA limit
  • Research the most suitable Lifetime ISA product for you. For example if you want to save your money in a cash LISA or Stocks and Shares LISA
  • The sooner you open your LISA, the more benefits you could possibly see in the long term through potential stock market increase and the government bonus.

Points to Note

There are a few limits that could prevent you from wanting to apply or make use of a Lifetime ISA:

  • Make sure that you are happy to keep the money ‘locked away’ until you are ready to use the money for either a house purchase or when you reach retirement. If you choose to withdrawal prior to this, you will incur a penalty, which effectively removes the government bonus
  • You will need to have your LISA open for at least 12 months before you can use it to purchase your property
  • You’ve never bought a property before in the UK or anywhere around the world
  • The property you intend to purchase must cost £450,000 or less
  • If you chose to use the LISA for retirement, you will be able to access it at 60. When you reach 60 you can withdraw the whole amount in one go, or you can take out the money as and when you want it.
white wooden house in the middle of green trees
Photo by Birgit Loit on Unsplash

Why You Should Open A Lifetime ISA now

Due to the current low interest rates , it is now hard to make much money on the money that you have saved. This is an ideal product to ensure that your money is working best for you. The longer you have your money stored in this product, the greater returns you will see on your investment.

Lifetime ISAs also allow you to invest your money in the stock market (invested) which could potentially provide greater returns than savings. If you intend to lock your money away for at least three ways a stocks and shares LISA could be be a perfect way to store your money. My Lifetime ISA is an investment LISA, find out more about it in my blog post here.

However, if you are not keen on investing your money in the stock market, cash Lifetime ISAs are also available. Moneybox offer a Cash Lifetime ISA, check out more information on their website here

Help to Buy ISA v’s Lifetime ISA

Whilst the Help to Buy ISA has now closed to new applicants in November 2019, those who managed to open an account before the deadline can still continue to pay into the account.

You can have both accounts open, but you can only use the government bonus from one of them when you buy your first home, meaning you can only use one towards your house deposit. You can transfer the money from a Help to Buy ISA to your Lifetime ISA to keep everything together. 

Which one is better?

As well as an ISA, I also have a Help To Buy ISA and in the last few months I have stopped my monthly £200 direct debits in order to focus on my LISA and Stocks and Shares ISA.

It really depends on your personal situation – you may have over £10,000 in your Help to Buy ISA already and looking to purchase a property within the next 12 months. Therefore you will not be able to use your Lifetime ISA to make this property purchase, however still contribute to it and use it for retirement.

The difference between the bonuses received and purchase price cap does favour the Lifetime ISA product.

6 comments

  1. Agh! Literally opened my Nutmeg LISA on Monday and NOW I see you have a referral link!! Looking forward to see where my LISA takes me.

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