TL;DR
The Lifetime ISA pays a 25% government bonus on annual contributions up to £4,000, capped at £1,000 a year per person. Two first-time buyers under 40 can both open one and pool the funds toward a single home deposit, which can mean up to £2,000 a year of bonus money on top of their own savings. The property price limit is £450,000.
The Lifetime ISA (LISA) was introduced in April 2017 as a savings product designed to help first-time buyers and retirement savers. It is open to UK residents aged 18 to 39. Contributions can continue until age 50.
The headline feature is the 25% government bonus paid on contributions. A saver who puts in the maximum £4,000 in a tax year receives a £1,000 bonus on top. The bonus is paid monthly into the LISA account, usually four to nine weeks after the contribution.
How two savers can combine LISAs for a first home
The Lifetime ISA is an individual product. Each saver opens their own account. There is no joint LISA. However, two people buying their first home together can each use the funds from their LISA, including the government bonus, toward the same property.
A couple aged 19 and 20 saving the maximum from age 18 to age 22 would each contribute £16,000 over four tax years and receive £4,000 in government bonuses each. Combined, that totals £40,000 of savings plus bonuses available toward a single home deposit.
The £450,000 property price cap applies to the home being purchased, not to the LISA contributions. Both buyers must be first-time buyers, meaning neither has previously owned a residential property anywhere in the world.
The rules for using a LISA on a first home
To withdraw LISA funds for a first home purchase without penalty, all of the following must apply:
- The buyer is a first-time buyer (no prior residential property ownership)
- The LISA has been open for at least 12 months
- The home costs £450,000 or less
- The home will be the buyer's only or main residence
- The home is being bought with a mortgage from a UK regulated lender
- The funds are paid directly to the conveyancer, not to the buyer
If any of these conditions are not met, withdrawals trigger a 25% withdrawal charge, which can leave the saver with less than they originally contributed. The withdrawal charge applies to the full amount withdrawn, including the government bonus.
The withdrawal penalty mechanics
The 25% withdrawal charge is calculated on the gross withdrawal, not the bonus alone. Consider a saver who contributes £4,000 and receives a £1,000 bonus, building up to £5,000. If they withdraw early for a non-qualifying reason, the charge is 25% of £5,000, or £1,250, leaving £3,750. The saver effectively loses £250 of their own contribution.
No charge applies if the withdrawal is for a qualifying first home purchase, for retirement from age 60, or if the saver is terminally ill with less than 12 months to live.
How the LISA compares to other first-home savings
The Help to Buy ISA closed to new accounts on 30 November 2019. Existing Help to Buy ISA holders can continue to contribute until November 2029. The Help to Buy ISA bonus is also 25%, capped at £3,000, but is paid only on completion of the home purchase, not monthly into the account.
A LISA can be a cash LISA or a stocks and shares LISA. For a home purchase within five years, cash is typically more appropriate because of market risk. For longer horizons (retirement, or a home purchase 10+ years out), stocks and shares may offer higher returns but with capital at risk.
Key facts
- Lifetime ISA available to UK residents aged 18-39; contributions until age 50.
- Maximum £4,000 contribution per tax year, plus £1,000 government bonus.
- Property cap of £450,000 for first home purchase use.
- LISA must be open 12 months before first-home withdrawal.
- Early withdrawal charge of 25% applies to non-qualifying withdrawals.
- LISA counts toward the overall £20,000 annual ISA allowance.
FAQ
Can one LISA holder use funds and the other not, on a joint first home purchase?
Yes. If only one buyer wants to use LISA funds, the LISA bonus still applies to their portion of the deposit. The other buyer can contribute from other savings without affecting the first buyer's bonus.
What counts as a first-time buyer for LISA purposes?
A first-time buyer is someone who has never owned a residential property anywhere in the world. Inheriting a share of a property counts as ownership for these purposes, even if the share was sold before the LISA purchase.
Can a LISA be used on a shared-ownership property?
Yes, provided the total market value of the property is £450,000 or less and the other LISA conditions are met. The LISA can be used for the deposit on the share being purchased.
What happens to LISA funds at age 60?
From age 60, funds can be withdrawn for any purpose without the 25% charge. Before age 60, withdrawals that are not for a qualifying first home purchase trigger the charge.
