Lifetime ISA in a nutshell
- UK residents aged 18-39 can open a Lifetime ISA.
- You can contribute up to £4,000 a year up until you reach the age of 50.
- The government will give you a 25% bonus on contributions – that’s a potential £1,000 ‘free money’ every year.
- Use your savings to buy your first home up to a value of £450,000, for anything you’d like once you’re 60, or if you're terminally ill.
- If you need to access your money for any other reason, you’ll pay a hefty penalty.
- Your Lifetime ISA contributions count as part of your 2020/21 annual ISA allowance of £20,000.
- You can contribute to both a stocks and shares Lifetime ISA and a ‘regular’ stocks and shares ISA in the same tax year.
- As a rule of thumb, if you're employed, employer pension contributions plus any tax relief is likely to outweigh Lifetime ISA 25% government bonus.
- If you’ve maxed out contributions on your workplace pension and you want to save more, the Lifetime ISA could be a good option.
- You can contribute to a Lifetime ISA for someone else provided they’re eligible.
- Some of the rules around the Lifetime ISA are complicated. If you’re unsure if a Lifetime ISA is the right choice for you, please seek financial advice.
A Lifetime ISA may not be right for everyone
As with all investing, your capital is at risk. The tax treatment depends on individual circumstances and may be subject to change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.
- You must be 18-39 years old to open one.
- If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll have to pay a 25% government withdrawal charge (the withdrawal penalty will be temporarily reduced from 25% to 20% from 6 March 2020 till 5 April 2021 due to coronavirus) meaning you’ll get back less than you’ve put in.Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
- If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.