Lifetime ISA FAQ

What is the Lifetime ISA?

The Lifetime ISA is a new government savings initiative to encourage millennials to save for their first home or retirement – savers receive a 25% government bonus on their contributions. The Lifetime ISA forms part of the UK government’s family of individual savings accounts (ISAs).

When will I be able to open one?

The government launched the Lifetime ISA on 6th April 2017, so you can open one now, provided you’re eligible.

Who can have a Lifetime ISA?

Any UK resident aged 18–39 can open and save into a Lifetime ISA. Your first contribution must be made before your 40th birthday — just opening an account is not enough.

How much can I contribute?

If you’re eligible to have one, you can save up to £4,000 each year in a Lifetime ISA.

What can I use it for?

You can put your savings, along with the government bonuses and any interest or returns earned, towards:

• buying your first home up to a value of £450,000
• anything you like once you’re 60

What makes the Lifetime ISA so attractive?

The government will give you a 25% bonus on every contribution you make until you reach the age of 50. So, for every £4 you invest you receive a £1 top-up. That’s a potential bonus of £1,000 each year to put towards your first home or retirement.

And, because it’s a type of ISA, you don’t pay tax on the growth, returns or interest – for your savings and the bonus.

You can choose to use these savings to buy your first home worth up to £450,000, or keep it in savings until you turn 60. For both options, you can withdraw your money (including the 25% government bonus) tax-free.

How much can I save?

You can contribute up to £4,000 each year until the day before you turn 50. For every £4 you contribute, the government will give you a £1 bonus, up to a maximum £1,000 per year.

For example, you start saving in a Lifetime ISA when you’re 18 and you contribute the maximum £4,000 allowance every year until you’re 50. Over this period, you may contribute £128,000 and receive £32,000 in government bonuses, totalling £160,000. As to how much further this will grow in terms of interest or investment returns will depend on whether you choose a cash Lifetime ISA or stocks and shares Lifetime ISA.

Can I pay in more than £4,000 to a Lifetime ISA each tax year?

No. The maximum amount you can contribute to a Lifetime ISA each year is £4,000. If you'd like to save more than £4,000 a year in an ISA, you could pay £4,000 into a Lifetime ISA and then save the rest into a stocks and shares ISA or cash ISA up to the overall 2020/21 ISA allowance of £20,000.

For how long can I contribute to a Lifetime ISA?

You can contribute to the Lifetime ISA until the day before you turn 50.

When are government bonuses paid?

The government pays Lifetime ISA bonuses at the end of each month.

The monthly bonus claim periods cover from the 6th day of one calendar month to the 5th day of the next calendar month and they take into account the qualifying payments received and cleared by Nutmeg into your Lifetime ISA during the claim period.

An example may help to clarify the position. The bonus due around 25th August will relate to the payments received and cleared into your Lifetime ISA from the 6th July to the 5th August.

To ensure a contribution is included and the bonus paid around the 25th of the month, you should make your contribution so it can clear before the 5th of that month. We suggest you make your payment by debit card at least three business days prior to the 5th of the month to allow the payment to reach your account. See why »

If you are arranging a home purchase and you want to use your Lifetime ISA funds, including any bonus, to make the purchase happen, the dates of the claim periods may be very important.

Can I access my savings?

Yes, but only to buy your first home up to a value of £450,000, when you’re 60+, or if you're terminally ill.

It must be at least 12 months since the first contribution was made to your Lifetime ISA before you can withdraw funds from it to buy your first home.

If you need to access your savings for any other reason, you’ll pay a hefty penalty. The government will charge you a 25% penalty on the total value of the withdrawal (the withdrawal penalty will be temporarily reduced from 25% to 20% from 6 March 2020 till 5 April 2021 due to coronavirus) so you may get back less than you put in.

For example: say you invest £4,000. Add to that the 25% government top-up and you’ll have £5,000. If you choose to withdraw the money for a ‘non-eligible’ reason, you’ll be penalised 25%, which equates to £1,250. Leaving you with £3,750: £250 less than your initial £4,000 investment. Savers need to watch out for this.

Is it a cash ISA or stocks and shares ISA?

The Lifetime ISA is available as a cash ISA or a stocks and shares ISA. Nutmeg only offers a stocks and shares Lifetime ISA.

Should I open a cash Lifetime ISA or stocks and shares Lifetime ISA?

It’s up to you to decide whether saving in cash or investing in stocks and shares is right for you. For the Lifetime ISA, a big part of this will depend on your goals, timeline and attitude to risk.

As a rule of thumb, cash is a safer bet for short-term savings. If you’d like to use the Lifetime ISA to save for your first home and you plan to buy it within the next three years, saving in cash is probably best.

On the other hand, a stocks and shares ISA offers the possibility of better returns in the long run. For example, if you’re planning to buy your first home in three years’ time or longer, or you’re saving for your retirement, investing in stocks and shares may suit you. Bear in mind that the value of your investment may fall and you could lose money.

You can use the Nutmeg Lifetime ISA calculator to get an idea of how much you could save in stocks and shares Lifetime ISA.

Can I contribute to a stocks and shares ISA and a Lifetime ISA in the same year?

Yes, you can contribute to both a ‘regular’ stocks and shares ISA and a stocks and shares Lifetime ISA in the same tax year. You can hold one Lifetime ISA alongside other cash, stocks and shares, or innovative finance ISAs, all within your annual ISA allowance of £20,000.

For example: if you invest the maximum £4,000 a year into a Lifetime ISA, you’ll have another £16,000 allowance to invest or save in other ISAs.

Can I transfer other ISAs into a Lifetime ISA?

ISA rules stipulate that you can transfer any other ISAs you have into the Lifetime ISA, up to the maximum of £4,000 per year. However, this feature is not yet available at Nutmeg.

Can I withdraw from my Lifetime ISA?

Take a look at Can I access my savings?

I’m not sure what I’m saving for. Should I have a Lifetime ISA?

If you’re not planning to buy your first home, you need to be certain that you can leave the money in the ISA until you’re 60. If accessing your money before you’re 60 for other reasons is important, you might be better off with a different type of ISA.