TL;DR
A Lifetime ISA (LISA) pays a 25 percent government bonus on contributions up to 4,000 pounds per year, giving a maximum annual bonus of 1,000 pounds. It can be used to buy a first home worth up to 450,000 pounds or withdrawn penalty-free from age 60. Withdrawing for any other reason incurs a 25 percent penalty that claws back the bonus and an additional 6.25 percent of your own savings.
Last reviewed: June 2026
The Lifetime ISA was introduced in April 2017 to help people under 40 either save for their first home or build a retirement fund alongside or instead of a pension. The 25 percent government bonus is the product's defining feature: for every 4 pounds contributed, the government adds 1 pound, up to a maximum of 1,000 pounds per tax year.
The LISA sits within the overall annual ISA allowance of 20,000 pounds and can be held as a cash LISA or a stocks and shares LISA. Since April 2024, you can open and pay into multiple ISAs of the same type in a single tax year, so a LISA can be used alongside a cash ISA or stocks and shares ISA in the same tax year.
KEY FACTS
- Maximum annual LISA contribution: 4,000 pounds. Maximum annual government bonus: 1,000 pounds.
- Eligible age range to open a LISA: 18 to 39. Contributions can continue until age 50.
- Property purchase limit: 450,000 pounds (unchanged since 2017).
- The LISA must have been open for at least 12 calendar months before it can be used for a property purchase.
- Unauthorised withdrawal penalty: 25 percent of the withdrawal amount (effectively removes the bonus plus 6.25 percent of your own money).
- Terminal illness: penalty-free withdrawal permitted regardless of age.
How the Lifetime ISA bonus works
The government bonus is paid by HMRC directly into your LISA, typically within six to ten weeks of making a contribution. It is calculated on contributions made in each tax year, not on the total balance. This means you can contribute the full 4,000 pounds at any point during the tax year (or spread it across the year) and receive the 1,000 pound bonus regardless of timing.
The bonus itself earns interest or investment returns once received, meaning the effective benefit compounds over time for long-term savers. A 25-year-old contributing 4,000 pounds per year from age 25 to 50 (25 years) would receive a total bonus of 25,000 pounds, not counting any interest or growth on either the contributions or the bonuses.
The bonus is paid gross of tax for all LISA types. In a cash LISA, interest earned on the bonus is tax-free. In a stocks and shares LISA, investment gains and dividends on the bonus are also tax-free within the ISA wrapper.
Using a LISA to buy your first home
The LISA can be used to buy a residential property worth up to 450,000 pounds anywhere in the UK, provided the buyer has never previously owned a residential property and is purchasing with a mortgage (not a cash purchase). The LISA must have been open for at least 12 calendar months before it can be used for a purchase.
The LISA proceeds are paid directly from the LISA provider to the conveyancer or solicitor handling the purchase, not to the buyer. This means you cannot withdraw the LISA funds personally and then use them for a deposit; the payment must go via the legal process.
If buying as a couple where one person already owns property, only the first-time buyer can use their LISA for the purchase. The other buyer's contribution must come from other funds. If both buyers are first-time buyers, both can use their respective LISAs toward the same property.
It is worth noting that the 450,000 pound property price cap has not changed since the LISA launched in 2017. In areas of the country where property prices have risen significantly, particularly London and the South East, the cap now excludes a large proportion of available properties. For buyers in higher-priced markets, a standard Help to Buy ISA (now closed to new applicants) or a high-LTV mortgage may be more practical options.
The withdrawal penalty explained
Withdrawing from a LISA for any reason other than a qualifying first home purchase, reaching age 60, or terminal illness diagnosis triggers a 25 percent withdrawal charge on the full withdrawal amount. This charge is levied on the total withdrawal including the government bonus, which creates an effective loss beyond simply returning the bonus.
To illustrate: if you contribute 4,000 pounds, receive a 1,000 pound bonus, and then withdraw the full 5,000 pounds, the 25 percent penalty is applied to 5,000 pounds, resulting in a charge of 1,250 pounds. You receive 3,750 pounds. You have lost 250 pounds of your own original contribution in addition to the entire government bonus.
During the Covid-19 pandemic, the government temporarily reduced the withdrawal penalty to 20 percent from March 2020 to April 2021, effectively allowing penalty-free withdrawals of your own contributions. This temporary reduction has since ended and the standard 25 percent penalty is back in force.
The penalty applies even if the LISA has performed poorly as an investment. In a stocks and shares LISA where the market has fallen, you would pay the penalty on the reduced value of the account, so the total loss could be the penalty plus the investment loss.
Cash LISA vs stocks and shares LISA
A cash LISA holds your contributions and bonus in a savings account earning interest at a variable or fixed rate. Cash LISAs are offered by providers including Moneybox, Beehive Money and Tembo. Rates vary but are typically competitive with standard easy-access savings accounts. Cash LISAs are suitable for those planning to use the LISA within a five-year horizon, typically for a property purchase.
A stocks and shares LISA invests contributions and bonuses in a range of funds, shares or investment trusts. Returns are not guaranteed and the value can fall as well as rise. Stocks and shares LISAs are offered by providers including AJ Bell, Hargreaves Lansdown and Moneybox. For investors with a time horizon of more than five years, a stocks and shares LISA may produce higher returns than a cash LISA, but this involves taking investment risk.
You can transfer a LISA between providers or between cash and stocks and shares types. Transfers must be done as an ISA transfer, not by withdrawing and reinvesting, to avoid triggering the withdrawal penalty. Transfer times can take several weeks, particularly for in-specie transfers of investments.
LISA vs pension for retirement saving
For most employed people, a workplace pension will be more efficient than a LISA for retirement saving because employer contributions add value that a LISA cannot match. An employer contributing 3 percent on top of your 5 percent under auto-enrolment rules represents an immediate 60 percent return on your own contribution, compared to the LISA's 25 percent government bonus.
However, for self-employed people without access to employer contributions, the LISA bonus is broadly equivalent to basic-rate pension tax relief (both add 25 percent to contributions). The LISA has the advantage of allowing tax-free withdrawals from age 60 with no tax due on the fund, whereas pension withdrawals above the tax-free cash entitlement are taxed as income.
Higher-rate and additional-rate taxpayers gain more from pension contributions than from LISAs, because pension contributions attract relief at 40 or 45 percent compared to the LISA's flat 25 percent bonus. For basic-rate taxpayers the comparison is closer, and for those expecting to be basic-rate taxpayers in retirement, the LISA's fully tax-free withdrawal is an advantage.
Frequently asked questions
Can I use a Lifetime ISA alongside a Help to Buy ISA?
The Help to Buy ISA scheme closed to new applicants in November 2019. Existing holders can continue saving until November 2029 and claim the bonus until November 2030. You can hold both a Help to Buy ISA and a LISA, but only one bonus can be used toward a property purchase. Most savers will find the LISA bonus more valuable due to the higher contribution limit.
What is the exact withdrawal penalty calculation?
The penalty is 25 percent of the full withdrawal amount. If you have 10,000 pounds in your LISA (your contributions plus the government bonus), withdrawing the full amount triggers a penalty of 2,500 pounds, leaving you with 7,500 pounds. Depending on how much of the 10,000 pounds was your own money versus government bonus, you may receive less back than you put in.
Can I have more than one LISA?
You can hold multiple LISAs with different providers, but you can only pay into one LISA per tax year. Since April 2024, you can open a new LISA and pay into it in the same tax year even if you paid into a different LISA earlier in that year, as long as total LISA contributions do not exceed 4,000 pounds across both.
What happens to my LISA if I die?
On death, a LISA passes to your estate. The government bonus does not need to be repaid. The LISA forms part of your estate for inheritance tax purposes unless left to a spouse or civil partner, in which case it can be transferred as an inherited ISA without losing its tax-free status.
