Lifetime ISA (LISA) – A Simple Guide

Earlier this year, we discussed the ins and outs of Help to Buy ISAs. If you’re saving to buy a property for the first time, a Lifetime ISA is another option you should consider. We’re going to provide an overview of the scheme to help you decide whether it would benefit you.

What is a Lifetime ISA?

The Lifetime ISA (LISA) allows you to save towards a first home or your retirement, with the government adding a 25% bonus on top of the funds you’ve saved. You’ll also earn tax-free interest on whatever you save, something which is characteristic of ISAs in general. When it comes to eligibility, the only requirement is that you’re aged 18-39 when you open the account.

How does it work?

You can withdraw funds from your ISA if you’re:

• A first time buyer
• Terminally ill (with less than 12 months to live)
• Aged 60 or over

You’ll have to pay a 25% charge if you withdraw your funds for any other reason.

You can use your ISA savings to help you buy your first home if:

• The property costs £450,000 or less
• You wait at least 12 months after you open the Lifetime ISA to buy the property
• You use a conveyancer or solicitor as part of the purchase
• You’re buying a property with a mortgage

There are cash Lifetime ISAs and stocks & shares Lifetime ISAs, both which come with their own risks and benefits. To find out more about the different types of ISAs, take a look at Money Saving Expert’s guide.

How much could I get?

You can pay into the scheme until you turn 50. So if you opened the account when you were 18, and put in the maximum £4000 every single year, you would receive a maximum bonus of £32,000 (£1000 every year, which is equivalent to 25%). You will also gain interest on the account as it matures, although the interest won’t be topped up with the government bonus.

Things to consider

• The maximum bonus is much higher than the Help to Buy bonus, making the Lifetime ISA particularly attractive.
• Despite this, there aren’t many LISA accounts available. You may have to open an account with a new bank, which is something to bear in mind. 
• Interest rates can vary depending on which bank you choose to open your ISA with. You should definitely shop around first.
• Due to the 25% fee you will incur if you withdraw your money early, you should only really open an account if you’re certain you want to use the money towards a first home or your retirement.

How Abode can help

Hopefully this has given you some insight into the Lifetime ISA scheme, especially if you’re a first-time buyer!

If you’d like to find out more about the scheme, or are in need of some general financial guidance, our Abode Financial Services team can offer you bespoke advice to help you on your way. We’re open 7 days a week, so get in touch with us today.