Lifetime ISA: the 25% bonus, the £4,000 limit and the withdrawal charge
Published · 4 min read · Figures checked . UK rules and rates change, so check the official sources below before you act.
A Lifetime ISA adds a government bonus to savings meant for a first home or later life. This guide explains the limits, the bonus, when money can come out without a charge, and what the 25% withdrawal charge means.
What a Lifetime ISA is
A Lifetime ISA (LISA) is a type of tax-free ISA. You can hold cash, stocks and shares, or a mix of the two. The government adds a bonus to what you pay in. The idea is that the money is used to buy a first home or kept until later in life.
It sits inside the normal ISA allowance. That means the amount you pay into a Lifetime ISA counts towards your overall ISA limit for the tax year, rather than being extra.
Who can use one
You must be 18 or over to open any ISA. For a Lifetime ISA you must also be under 40 when you open it. After you reach 50 you cannot pay in or earn the bonus, but the account can stay open and keep earning interest or investment returns.
This guide applies to adults who are eligible for ISAs in the UK. It does not apply to people aged 40 or over who have not yet opened one, and it is not a guide to any particular provider's account.
How the bonus works
The bonus is worked out on what you pay in. For example, £4,000 paid in over a year would attract a £1,000 bonus, which is the maximum for a year. Paying in less gives a smaller bonus at the same 25% rate.
When money can come out without a charge
The government says you can take money out of a Lifetime ISA without the withdrawal charge in a small number of situations:
- To buy a first home, if the rules below are met.
- When you are aged 60 or over.
- If you have a terminal illness with less than 12 months to live.
- On death, when the account ends and the money can be paid out with no charge.
The first home rules
For a first home, GOV.UK sets out several conditions. They include the following:
- The property must cost £450,000 or less.
- At least 12 months must have passed since your first payment into the account.
- You must use a conveyancer or solicitor, and the provider pays the money directly to them.
- The purchase must be made with a mortgage. Some private mortgages from relatives, or their partners, do not count.
- You must live in the property as your only or main home. Buying to let or as a holiday home triggers the charge.
- The purchase should be expected to complete within 90 days of the withdrawal, although extensions can be requested.
You can buy with other people, including people who are not first-time buyers. Each person using a Lifetime ISA makes a separate declaration. The conveyancer rules are written for England and Wales, Scotland and Northern Ireland separately, so the type of professional who can act depends on where the property is.
The 25% withdrawal charge
If you take money out for any other reason, it counts as an unauthorised withdrawal and a 25% charge applies. This includes moving the money to another type of ISA before you are 60. GOV.UK also says that moving Lifetime ISA money into a Help to Buy ISA triggers the charge.
The charge is taken from the whole amount you withdraw, not only the bonus. GOV.UK gives an example: £800 of your own savings plus a £200 bonus makes a £1,000 pot. Withdrawing all of it means a £250 charge, leaving £750. That is less than the £800 you paid in.
For a partial withdrawal, you have to take out more than you want to receive. To get £120, GOV.UK says you would withdraw £160 and pay a £40 charge.
Check before you act
Rules, limits and charges can change, and your own position depends on your circumstances. It can be worth confirming the details on the official GOV.UK pages linked below, and checking the terms of any account, before paying in or withdrawing.
Sources
For information only. See our disclaimer and editorial standards. Spotted an error? Tell us.
