Lifetime Isas Explained

Launched in 2016, Lifetime Isas can be a great way to save for your first home or top up your pension savings. We look at all the frequently asked questions

Annalisa Esposito 2 April, 2020 | 11:34AM
Facebook Twitter LinkedIn

piggy bank

The Lifetime Isa hasn't been around long, but can be a helpful tool for those investing for retirement or for their first home. Here's what you need to know: 

What is a Lifetime Isa?

A Lifetime Isa (Lisa) is a long-term tax-free savings account that gives you a government bonus of 25% of the money you put it, up to a maximum of £1,000 per year. This means that you get a quarter of the amount you save – for example if you save £1,000 during the year you would get a bonus of £250.

How can I open a Lifetime Isa?

The same way you'd open any other type of account. Shop around for the best provider for your needs and then open online, over the phone or in branch depending on which options are available. 

...And when?

You can open your account anytime during the year, but only if you are aged between 18 and 39. If you are about to turn 40 and are unsure whether to open a Lisa or not it's best to open one just in case - you can always close it at a later date. While you can only open an account up until age 39, you can keep making contributions until you turn 50. 

What if I exceed the annual limit?

While you can put more than £4,000 a year into a Lisa, you will not get any additional bonus. If you save £6,000 in a year into the account, you can still only earn the maximum annual bonus of £1,000. Any money saved into a Lisa comes out of your overall £20,000 Isa allowance, so you must be careful to ensure the total amount you save into all your Isas in one tax year does not go over this amount. 

Do I still get the bonus if I drip-feed money in?

Yes, it doesn't matter whether you use the allowance by investing a lump-sum or saving regular amounts. What it matters is that you put the money in before the end of the tax year, which ends on the 5th of April. How bonus payments are calculated may vary - some providers calculate on a monthly basis and others annually. 

When is my bonus paid?

Again, the way providers pay the bonus varies. Some pay the bonus in your account monthly, so you can get the interest on it, while others make a single payment at the end of the tax year. 

What can I use the money for?

Money saved into a Lisa should only be used either to purchase your first home or as a way to save for retirement. If you are saving for retirement, you cannot access the money until you turn 60 without forfeiting the bonus. 

What happens if I withdraw my money?

If you're not using the money to buy your first home or for retirement in most cases, you lose the bonus - effectively losing 25% of your money. There are exceptions however, and you will typically be able to withdraw the money and keep the bonus if you are terminally ill, with less than 12 months to live.

Can I open more than one Lifetime Isa?

Yes, but not in the same tax year. You can only open one of each type of Isa account per tax year.

What should I opt for: Cash Lisa or a Stocks & Shares Lisa?

This is a question only you can answer (or your financial adviser) and depends on different factors such as how far you are from accessing the money and how much risk you're willing to take. For example, if you expect to buy a home within a year or two you might opt for a cash Isa because you are then not taking on stock market risk, which could see the value of your savings fall. Those saving for retirement may have longer until they need they money so may want to invest it. 

How much interest can I get on a Cash Lisa?

Different providers offer different interest rate for Cash Isa. For example, Nottingham Building Society pays interest of 1.4% on a Cash Isa, while Hargreaves Lansdown offers only 0.2%.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Annalisa Esposito  is a data journalist for

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures