LISA WANTS TO HAND YOU SOME FREE MONEY

Today we're talking about Lifetime ISAs – a savings product that’s been around for a few years but still causes some confusion.

A Lifetime Isa can be a strategic way for under-40s to save either for their first home, or retirement. Not only do savings grow tax-free, but the Government rewards savers with a 25% top-up too, worth up to £1,000 a year.

Q: What exactly is a Lifetime ISA?

A: A Lifetime ISA, or LISA, is a type of Individual Savings Account designed to help people either buy their first home or save for retirement.

You can put in up to £4,000 each tax year, and the government adds a 25% bonus on top – so that’s up to £1,000 extra every year.

You earn interest on whatever you save, and because it's an Individual Savings Account, that interest is tax-free.

The maximum bonus is about £33,000

Q: Who can open one?

A: They’re available to UK residents aged between 18 and 39. Once you’ve opened the account, you can continue paying into it until you’re 50.

Q: If I am 39 - is it still worth doing it since the cut-off is 40?

A; If you open one before you hit the cut-off age, it can still be worth openng it because as long as you do it before the deadline, you can continue to put money into the LISA until the day before your 50th birthday.

Once you're 50 you continue to get interest/investment growth/losses but you are not able to pay in any extra to your pot.

Q:You mentioned it can be used for buying a first home or for retirement. Can you use it for anything else?

A:That’s where the catch comes in. If you withdraw the money for anything other than buying your first home, or after the age of 60, you’ll face a 25% withdrawal penalty. That actually means you lose more than just the government bonus – you’ll dip into your own savings too.

Q: Can it be used for parents or grandparents to help buy a first home?

A: For parents or grandparents wanting to help buy a home, using a LISA can be a very effecitve way of giving a hekping hand. You can't open the LISA for them - but they can do it and subject to certain restrictions, you can give them the money for them to open the account.

There are lots of rules around gifting money and I should do an extra piece on that - but in general you have an Annual Exemption under which you can gift up to £3,000 each tax year without it being added to the value of your estate for IHT purposes. Gifts that don't fall under the exemptions above are considered "Potentially Exempt Transfers" (PETs). If you survive for seven years after making such a gift, it becomes exempt from IHT

Q: Do you have you hold it for a minimum period?

A: You must have had a LISA for a year to be able to use it (and the government bonus) towards your first home.

The bonus is paid every month you save something in to your LISA, until you hit age 50. The bonus takes between four and nine weeks to arrive..

You only get the bonus on contributions, not cash interest or investment growth.

Q:So would you say it’s a good deal?

A:It can be a great deal – especially for first-time buyers. That 25% bonus is hard to beat. But it’s not for everyone. If you’re not sure you’ll use it for a house or retirement, you might be better off with a different ISA or savings account.

Q:How does it compare to a Help to Buy ISA?

A: Help to Buy ISAs were actually phased out in 2019, though people who already had one can still use it. LISAs generally offer a bigger bonus and let you save more each year. But they have stricter rules, so it’s important to understand the differences.

Q: :Any common pitfalls people should watch out for?

A:Yes – one is trying to use it to buy a house worth over £450,000. That’s the maximum limit, and if your home costs more than that, you won’t be able to use the LISA bonus. Also, if you open one too close to when you plan to buy, you might miss out – the account has to be open for at least 12 months before you can use it for a house purchase.

The overall ISA limit is £20,000 in the 2025/26 tax year. You are allowed to split this between one LISA (up to the maximum £4,000) and put the remainder in cash ISAs, stocks & shares ISAs in the same tax year.

Q: What happens if you draw out the money or need to buy a home more than £450,000

A: 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,

Q: How do I choose a LISA?

A: Spend some time doing your research but here is a good place to start from WHICH? - with a guide and some suggestions of a range of particular LISAs to choose from.

Q: Any final tips?

A: Just do your research and think carefully about your goals. If you’re a first-time buyer under 40, a LISA can be a very powerful tool – but like all financial products, it needs to suit your personal circumstances.

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Please remember everything on this site is journalist commentary and is not financial advice or guidance in anyway.

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