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What is a Lifetime ISA (LISA)?

A Lifetime ISA - or LISA - is a government-backed savings account. It’s a specialised type of Individual Savings Account (ISA) designed to help people aged 18-39 save for their first home or retirement. It was introduced in 2017 by the government and replaced the Help to Buy scheme.

How do LISAs work?

You can save up to £4,000 each tax year (2025/26), until you’re 50. The government adds a 25% bonus on your contributions - up to £1,000 annually. You can earn interest on your savings, and, as an ISA, that interest is tax-free. You need to make your first payment into your LISA before you’re 40.

The funds, including the bonus, can be used to purchase a first home (up to £450,000) or accessed tax-free after you turn 60. The LISA can be held in cash, stocks and shares, or a combination of both, depending on the provider you choose.

Can I transfer my LISA?‍

Yes. You can transfer your LISA between available providers without charge.

How many LISAs can I have?‍

You can have multiple LISAs, but can only pay into one per tax year.

Can I use a LISA for buy-to-let?‍

No, you can’t use your LISA to invest in buy-to-let property.

How much do I need to open a LISA?‍

You can open most LISAs with as little as £1. That said, some providers might have higher minimum contribution amounts.

Who are LISAs right for?

LISAs aren’t available to everyone. But it might be a good option for you, if you fit the following profile:

You’re aged 18-39 - you must be within this age range to open a LISA.
You’re a UK resident - you must be a UK resident to open a LISA. If you move abroad after opening your LISA, you can’t continue to pay into it. However, you can keep your LISA open and continue to benefit from investment growth if it’s a Stocks and Shares LISA. You can also transfer to another LISA while abroad. If you return to the UK, you can start paying into it again.
You’re a first-time home buyer - you can use your LISA funds to buy a home, but the property must be your first and not worth more than £450,000.
You’re saving for retirement - you can save for your retirement and access the funds tax-free after age 60.

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Types of LISA - which is best for you?

There are two types of LISA - Cash LISAs and Stocks and Shares LISAs.

Cash LISA

Cash LISAs function like a savings account with interest. Whereas Stocks and Shares LISAs offer higher potential returns but come with more risk. Both qualify for the 25% government bonus, but differ in potential risk and returns. Cash LISAs can often be thought of as the ‘safer' option, and can be well suited to those planning to buy a home within a few years or who prefer a very low risk approach.

Stocks and Shares LISA

Stocks and Shares LISAs, on the other hand, allow you to invest in various assets, from low-risk bonds to more volatile equities (company shares). They might be a suitable choice over a longer term horizon (e.g. retirement) where your funds have a chance to benefit from compound interest. Compound interest is where you earn interest on top of the interest already earned. This is because the markets tend to outpace saving interest rates over a long enough timeframe. However, it should be noted that past performance isn’t an indicator of what could happen in the future.

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Withdrawing money from your LISA

You can withdraw funds from your LISA without penalty by notifying your provider and completing a customer declaration form if:

you’re purchasing your first home*;
are aged 60 or older; or
are terminally ill with less than 12 months to live.

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Warning: Withdrawing money from your LISA for any other reason will incur a 25% penalty charge (referred to as an ‘unauthorised withdrawal’). This recoups the government bonus added to your original funds.

*In the case of purchasing your first home your conveyancer or solicitor will also need to complete a form and send it to your provider.

How to withdraw money from your LISA

The procedure for withdrawing funds from your LISA varies, based on how you intend to use the money and your provider. The next section covers withdrawing money to buy your first home.

Regardless, it’s probably best to give your LISA provider as much notice as possible about your plan to withdraw. This is because exact timings can vary, depending on the provider and what you want to do with those funds.

As a general rule, expect to fill in some forms from your provider. And remember, if you choose to withdraw funds for an unauthorised reason, you’ll have to pay the 25% government charge.

Buying your first home using a LISA

The LISA was designed to help you buy your first home, but before you make an offer on a property or take cash out, it’s important to check that you meet the following criteria:

you’ve held the LISA for at least 12 months since your first contribution;
you’re buying with a mortgage - but not one that’s privately funded by your relatives;
the property costs £450,000 or less; and
a conveyancer or solicitor handles the purchase (with the LISA provider transferring funds directly to them). You can’t withdraw the funds directly without incurring the withdrawal charge, unless you’re 60 or over, or suffering a terminal illness.

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If you’re buying with another person who also has a LISA, is a first-time buyer and meets the above criteria, you can both use your savings and the associated government bonuses.

Using a LISA, a 25-year-old, saving £4,000 annually for five years to buy a home, could accumulate a government bonus of £5,000 towards that purchase. And two people over that same timeframe, buying together, could accumulate a £10,000 bonus.

Maximising your LISA

If you fit the criteria for a LISA, it could be a powerful part of your long-term financial planning. Whatever your savings goal, here are a few ways to make the most of your LISA.

Start early - if you’re planning to buy a property, you need to have had your LISA for at least 12 months. And - thinking longer term - as with many things in investing, the sooner you start, the more the compounding effect can work in your favour.

Maximise the benefits - unused ISA allowances don’t roll over when the new tax year starts on 6 April. So, make the most of your allowance for the year.

Combine it with other ISAs - the £4,000 LISA allowance is part of the £20,000 annual ISA allowance in 2025/26. If you have the funds, you could use your remaining £16,000 for other ISAs.

Avoid withdrawal penalties - it’s a good idea to keep a separate emergency fund in an easy-access cash account to avoid dipping into your LISA prematurely.

Work together - if you’re buying with someone, you can open separate LISAs if you're both first-time buyers, doubling the bonus potential. Two people saving £4,000 each could receive £2,000 in bonuses annually, accelerating your deposit savings for a property.

With today’s high inflation and high cost of living, the LISA offers a major opportunity for young adults to start saving early. LISAs can be great savings vehicles for either purchasing a first home or saving for retirement.

There are, of course, caveats. The age limits, contribution cap, and penalties for early or non-qualifying withdrawals mean that a LISA isn’t suitable for everyone - even when you factor in tax-free growth and the government’s generous 25% bonus.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.