Lifetime ISA bonus: how it works
If you’re saving into a Lifetime ISA, then here is everything you need to know about how the bonus works

A Lifetime ISA bonus can be a great way to boost your savings. The bonus element makes it a stand out savings account for buying your first home or saving for a pension. Free money from the government? Why, yes please!
However, it’s important to think about your plans and possible future scenarios when deciding whether to opt for a Lifetime ISA as it requires you to essentially lock your money away. Taking it out too soon can jeopardise the bonus payment.
“One of the features of a Lifetime ISA that make it particularly appealing is the fact that your savings power can be boosted by the government, as they can pay a 25% bonus on what you have managed to contribute into your LISA, up to a maximum of £1,000 per year. However, savers need to be aware of the rules with regards to withdrawing funds and think carefully about their future plans, as they may face hefty withdrawal charges should they need to access their nest egg for reasons other than retirement or for buying their first home,” explains Eleanor Williams, a finance expert from data analyst Moneyfacts.
If there is any possibility that you will need to access the cash for other reasons than buying your first home or retirement, you will lose out via an early withdrawal penalty.
This happened to many Lifetime ISA savers in 2020/21: withdrawal charges worth a massive £34m in total were levied - more than a threefold increase on the previous tax year.
We explain everything you need to know about the Lifetime ISA bonus.
How much is the Lifetime ISA bonus?
The government adds a 25% bonus on top of what you save, up to a maximum of £1,000. If you save the maximum £4,000 in a tax year (April 5 2022 to April 5 2023) you’ll get the maximum £1,000 bonus.
Save less and the 25% Lifetime ISA bonus still applies. For example, if you save £3,000 then you’ll receive £750.
It means that if you open a Lifetime ISA at the age of 18 and save the maximum amount each year for 12 years to buy your first home at the age of 30, you will end up with £60,000. You’ll have saved £48,000 and the government bonus will be worth a further £12,000.
If you want to receive the absolute maximum bonus possible you’ll need to open a Lifetime ISA at 18 for retirement reasons and save £4,000 each year until your 50th birthday. This way you’ll end up with £165,000. You’ll have saved £132,000 and the government bonus will be £33,000.
Who can get the Lifetime ISA bonus?
You must be over 18 and under 40 years old to open a Lifetime ISA. You must make your first payment into it before you're 40.
You can only withdraw the money, without having to worry about those withdrawal charges, in the following three scenarios:
- To use as the deposit on your first home that you plan to live in (not rent out) up to the cost of £450,000 in London and £250,000 outside London
- You are over 60
- You are terminally ill
You need to have had a Lifetime ISA open for at least a year in order to get the first-time buyer bonus.
It’s worth opening one with the minimum £1 even if you’re not sure you’ll use it - that way you’ll benefit from the clock ticking if you decide to use it and can therefore benefit from the Lifetime ISA bonus.
The rules for what constitutes a first-time buyer are clear-cut. If you have inherited a property, never lived in it and sold it immediately, then that is still classed as having owned it. If you owned a business or had a trust that owned a residential property that you could live in, then you are also excluded from benefiting from the Lifetime ISA to buy a property.
Read how Natasha Evita saves the maximum possible in a Moneybox Lifetime ISA in order to get the government’s £1,000 bonus to boost her home deposit savings.
How is the Lifetime ISA bonus paid?
Your Lifetime ISA provider claims the bonus for you and then adds it to your Lifetime ISA balance. The time it takes can vary somewhat between different providers, but it will generally be paid between four and nine weeks after the date of your contribution.
Some providers manage the bonus differently, by either automatically reinvesting it to maximise your potential returns or depositing it in a non-interest earning cash account.
For example, investment platform AJ Bell says that on the 6th of each month it claims the bonus on whatever you’ve paid into your Lifetime ISA during the previous month, and you can then see the bonus in your account four weeks after that.
In the case of AJ Bell, the Lifetime ISA bonus is paid as cash into your account so if you have a stocks and shares version you are able to invest it straight away.
How quickly is the Lifetime ISA bonus paid?
This all depends on your provider, which will claim the Lifetime ISA bonus for you and then add it to your account. You’ll be looking at waiting between four and nine weeks from the date of your contribution to see the bonus in your account.
When it comes to how quickly the Lifetime ISA is paid out when you buy a home, there are strict rules.
You need to take out a conventional repayment mortgage, while you also need to have had your Lifetime ISA for at least 12 months.
You have to request for the balance of your Lifetime ISA (including the bonus) to be transferred to your solicitor - you never actually see the money. The property purchase must be made within 90 days of the money leaving your Lifetime ISA, though your solicitor can write to HM Revenue & Customs (HMRC) to ask for an extension if the process is delayed for some reason. If the sale falls through, all the money is returned to your Lifetime ISA.
What are the Lifetime ISA bonus rules?
The government pays the Lifetime ISA bonus until you use the funds to buy a property or until your 50th birthday.
You can only use a Lifetime ISA for a first home or retirement. If you take the money out for any other reason you will lose the Lifetime ISA bonus and be penalised with an additional 5% withdrawal charge.
For example, if you saved £4,000 in your Lifetime ISA, plus the £1,000 bonus then you would have a balance of £5,000. If you withdrew the cash for a reason other than buying a first home or retirement (and you were not terminally ill), then you would lose 25% of that balance, which works out at £1,250. This would leave you with £3,750 - less than you had originally saved!
You can have a Lifetime ISA and a regular (cash and/or stocks and shares) ISA at the same time and pay into each as long as you don’t go over the overall £20,000 annual allowance. For example, if you wanted to max out both you could put £4,000 in a Lifetime ISA and £16,000 in a regular ISA.
Read how Georgie Frost has opted to use a Lifetime ISA to buy her first home rather than boost her pension-building efforts.
Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities. Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.
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