Lifetime ISA Explained: The 25% Bonus, Rules and Is It Worth It?

A Lifetime ISA (LISA) is a UK savings account for people aged 18 to 39 that gets a 25% government bonus on everything you put in, up to £4,000 a year. That means up to £1,000 a year free. You can use the money to buy your first home costing up to £450,000, or take it out from age 60. Withdraw it for anything else and you pay a 25% charge.

Quick check: see how a Lifetime ISA grows with the bonus in our free ISA calculator, which has a Lifetime ISA option.

How the Lifetime ISA works

• Who can open one: UK residents aged 18 to 39. Once open, you can keep paying in until the day before your 50th birthday.
• How much: up to £4,000 per tax year, which counts toward your £20,000 overall ISA allowance.
• The bonus: the government adds 25% of what you pay in, paid monthly by most providers.
• Cash or investments: you can choose a cash LISA or a stocks and shares LISA.
• Tax: like all ISAs, no income tax or capital gains tax on growth.

How much can you get?

If you open a LISA at 18 and pay in the maximum every year until 50, you would put in £128,000 and receive £32,000 in bonuses, before any interest or investment growth. Even a few years of maximum saving for a house adds thousands. Saving £4,000 a year for 4 years gives you £16,000 plus £4,000 in bonuses.

Using a Lifetime ISA to buy your first home

• You must be a first-time buyer, never having owned a home anywhere in the world.
• The property must cost £450,000 or less, and you must buy it with a mortgage.
• The account must have been open for at least 12 months before you use it.
• Your solicitor or conveyancer requests the money from the provider and it goes straight to the purchase.
• If you buy with a partner, you can each use your own LISA, doubling the bonus.

The £450,000 cap has not changed since the LISA launched in 2017, while house prices have risen. In parts of London and the South East, many first homes now cost more. Check local prices before relying on it.

Using a Lifetime ISA for retirement

From age 60 you can take everything out tax-free, for any reason. Compared with a pension, a LISA gives a 25% bonus, the same as basic-rate tax relief, and withdrawals are tax-free. But a workplace pension usually wins if your employer adds contributions, and higher-rate taxpayers get more relief in a pension. Many people use a LISA alongside a pension, not instead of one.

The withdrawal charge

Take money out for any other reason before 60 and you pay a 25% charge on the amount withdrawn. That takes back the bonus and a bit of your own money too. Put in £4,000, get £1,000 bonus, withdraw £5,000, and the charge is £1,250, leaving you £3,750, which is £250 less than you put in.

The charge does not apply if you are terminally ill, and the LISA passes to your estate without the charge if you die.

Cash LISA or stocks and shares LISA?

For a house purchase within about five years, a cash LISA is safer, because a market drop just before you buy would hurt. For retirement savings decades away, a stocks and shares LISA has more growth potential. Compare the two approaches in our stocks and shares ISA vs cash ISA guide.

Is a Lifetime ISA worth it?

Yes, if you are under 40, plan to buy a first home under £450,000 or want extra retirement savings, and are confident you will not need the money for anything else.

Maybe not, if you might buy a home above the cap, could need the money in an emergency, or have not yet taken the full employer match in your workplace pension.

The government has said it plans to review the Lifetime ISA and may replace it with a new product for first-time buyers. Existing accounts are expected to keep their rules, but check for updates before opening one.

Frequently asked questions

Can I have a Lifetime ISA and a Help to Buy ISA?

Yes, but you can only use the bonus from one of them to buy your first home.

Can I open a LISA at 39?

Yes, as long as you open it before your 40th birthday. You can then pay in until you turn 50.

What happens to my LISA at 50?

You can no longer pay in or get the bonus, but the account stays open and keeps growing tax-free until you withdraw from 60 or use it for a first home.

This article is general information, not financial advice. ISA rules are set by HMRC and can change.