How does a Lifetime ISA work and should I get a LISA?
Are Lifetime ISAs – also known as LISAs – worth it if you're saving for a house deposit? We explain all you need to know.


A LISA, or Lifetime ISA, is a type of ISA. Like any other ISA money held within the account is protected from tax. But on top of that LISA deposits benefit from a 25% bonus from the government worth up to £1,000 a year.
To open an account, you must be between the age of 18 and 40 and a UK resident.
But be warned - you can only use the money in a Lifetime ISA to buy your first home or to save for retirement.
How does a Lifetime ISA work?
If you are aged between 18 and 40 you can open a Lifetime ISA. You can then deposit up to £4,000 a year into your account and the government will add a 25% bonus. The bonus is calculated monthly and added to your account the month after your deposit.
Once you have a Lifetime ISA you can pay into it until you are 50. That means if you paid in the maximum amount from the age of 18 until you turned 50 you could benefit from £32,000 from the government on top of any growth in your account.
What are the LISA withdrawal rules?
You cannot withdraw money from your LISA unless it is to pay for your first home, you have turned 60 or you have been diagnosed with a terminal illness.
If you make any other withdrawal, you will pay a charge of 25% of the amount taken out of your account. So, let’s say you’ve paid in £4,000 but decide you want to withdraw £1,000. You will have received your £1,000 government bonus so your balance is £5,000. However, when you withdraw £1,000 the 25% penalty will be applied costing you £250 so you only receive £750.
What happens to my LISA if I die?
If you die the balance of your LISA, including interest and bonuses, is passed on to your beneficiaries without any penalty. The money will lose its tax protection and will become part of your estate, meaning it could be liable for inheritance tax.
How do I use a LISA to buy my first home?
There are strict rules around how you can use your LISA balance to help buy a home. These are:
- You must be a first-time buyer.
- The home must be worth no more than £450,000.
- You must intend to live in the property.
- You must use a traditional repayment mortgage.
- Your LISA must have been open for at least 12 months.
During the house purchase process your conveyancer or solicitor will need to apply to your LISA provider for the money in your account.
How do I use a LISA to fund my retirement?
Once you turn 60 you can withdraw money whenever you like from your LISA without paying any penalties. The idea is you then use that money to fund your retirement, but it is up to you what you do with it.
The Perks and Pitfalls of a LISA
If you are deciding whether you should get a LISA, you need to consider the pros and cons of the account. It has some attractive aspects but there are also considerable downsides to a LISA.
The Perks of a LISA
- Your money can grow free from income tax, capital gains tax and dividend tax.
- You get a 25% bonus from the government worth up to £1,000 a year.
- Couples planning to buy a house together can each open a LISA and get the bonus so you could get up to £2,000 a year.
- You can still pay into other ISAs. The annual ISA limit is £20,000 so if you pay the maximum £4,000 into a LISA you can still pay up to £16,000 into another form of ISA.
The Pitfalls of a LISA
- You can’t buy a property worth more than £450,000. This hasn’t risen since 2016, but house prices have soared. The average house in London now costs £537,920 so you could find the home you want to buy is too expensive to use your LISA balance.
- If you can’t use your LISA money to buy a home, you won’t be able to access it until you turn 60.
- The 25% withdrawal penalty.
- The age limit – you can’t open a LISA if you are 40 or older.
Should I get a LISA?
Whether or not a Lifetime ISA is right for you will depend on your individual circumstances. If you are saving for your first home then the 25% government bonus could be a big help, just be aware of the price limit on property and check how that will affect your search in your local area.
If you are considering using a LISA to save for retirement, consider whether a workplace pension could be more rewarding and be certain you won’t want to access the money before you turn 60.
Can you have other ISAS?
Yes. The maximum you can save in a LISA each tax year is part of your overall ISA allowance (£20,000 in the 2021/22 tax year). For example, if you saved £4,000 into a LISA, you can save up to £16,000 in other ISAs, such as cash ISAs and stocks and shares ISAs.
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Ruth is a personal finance journalist with 17 years’ experience writing about everything from pensions to pet insurance. Ruth started her career as a staff writer for MoneyWeek and she continues to edit their personal finance section. Ruth also writes for numerous national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping. Ruth is passionate about ethical investing and encouraging people to take control of their finances and not be put off by jargon.
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