John Fitzsimons
Holly Bennett
Hannah Nemeth
If you are looking to buy your first property, then a big challenge is likely to be putting together a decent deposit. According to the Office for National Statistics, the average UK property is worth £285,000 (December 2023). That means you’ll need more than £28,500 to put a 10% deposit on the typical home.
One way to make that process a little easier is to take advantage of bonuses that come from saving with a Lifetime ISA.
What is a Lifetime ISA?
The Lifetime ISA is a form of tax-free savings account designed to help people looking to do one of two things: save for their first home, or save for later life. On top of the interest paid by your account provider, you will also receive an annual bonus from the government of 25% each year, until you reach the age of 50.
How much can I save in a Lifetime ISA?
You can’t put more than £4,000 a year into a Lifetime ISA. As a result, the 25% government bonus amounts to a maximum of £1,000 each year.
Everyone in the UK has an overall annual ISA allowance. For the current tax year (2024/25), that allowance stands at £20,000.
The Lifetime ISA limit counts toward that overall ISA limit, so while you can save up to £4,000 a year in the Lifetime ISA, you can save a further £16,000 each year through a combination of other types of ISA, such as a cash ISA or stocks and shares ISA.
Who can open a Lifetime ISA?
You must be at least 18 to open a Lifetime ISA. The account must also be opened before you turn 40 years old, though the bonus is potentially payable until you reach age 50. Lifetime ISAs are only open to UK residents, crown employees based overseas, or spouses or other dependents of a crown employee.
Where can I get a Lifetime ISA?
A host of different banks and building societies, banks and investment platforms offer Lifetime ISAs.
Importantly, they come in a couple of different forms, too. Some are cash Lifetime ISAs that operate much like an ordinary savings account, where you are paid a set rate of interest by the provider. The government bonus is then paid on top.
With others, the money you put into the account is instead invested in the stock market. These are obviously riskier as there is the potential that your investments fall in value, and you end up with less than you put in.
As a result, it’s important to carefully consider precisely where your money will be invested and how quickly you will need to access your money before opening a stocks and shares Lifetime ISA. This option may therefore be more relevant to people who are using their Lifetime ISA to save for retirement because they have a much longer investment horizon and the potential to ride out short-term losses.
How can I open a Lifetime ISA?
You will need to open the Lifetime ISA directly with the account provider.
Along with personal information like your name, address and date of birth, you will also need to supply your national insurance number.
Withdrawing money from a Lifetime ISA
The Lifetime ISA is designed to help people buying their first home or who want to save for their retirement outside of a pension.
As a result, there will be no charges for withdrawing cash or assets from your Lifetime ISA to help you buy a property or if you are 60 or older. There will also be no charge if you make a withdrawal and are terminally ill, with less than 12 months to live.
However, in all other situations there will be a withdrawal charge of 25% of the amount you withdraw.
What sort of property can I buy using a Lifetime ISA?
There are rules covering the type of property you can buy using the money saved in your Lifetime ISA. It needs to be a property you intend to live in, rather than a buy-to-let property, and it must be in the UK.
In general the property needs to be your first home, bought with a mortgage and cost less than £450,000.
» MORE: Why Help to Buy and Lifetime ISA house price limits should rise
Can I have two Lifetime ISAs?
You can only open and contribute to a single Lifetime ISA in each tax year. However, as with other forms of ISA, you can have more than one Lifetime ISA in your name.
For example, you could have opened a Lifetime ISA and paid into it in the 2023/24 tax year. You can then open a new Lifetime ISA with a different provider in the 2024/25 tax year. However, you can only pay into one of them.
You can also buy a property with somebody else who is using one, but they must also be a first-time buyer.
For example if you are buying with your partner, you can both open Lifetime ISAs separately and enjoy twice the government bonuses on your savings, helping you build a sizeable deposit between you more quickly.
» MORE: Should you invest in a pension or a property?
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