Lifetime ISA (Individual Savings Account) is a special type of savings account available in the United Kingdom. When you save in a Lifetime ISA, the British government will add a 25% bonus to your savings, up to a maximum of £1,000 each year.
A Lifetime ISA can be used to hold both cash and stocks (shares).
Is Lifetime ISA for anyone?
No, it is not.
You have to be 18-39 to open one; when you have turned 40 you are too old to qualify. Your first deposit must be made before you turn 40. After that, you can continue to put in money until you turn 50. Once you turn 50, you can no longer pay into your Lifetime ISA or get the 25% bonus. Your savings will stay in the account and earn interest or investment returns.
Only a UK resident can open and continue to pay into a Lifetime ISA. Important: Exceptions are available for a crown servant and their spouse/civil partner.
How much can I put in my Lifetime ISA?
The upper limit is £4,000 each year, until you are 50 years of age.
Important: The Lifetime ISA limit counts towards you annual ISA limit. (There is more than one type of ISA available.) For the 2022 to 2023 tax year, that limit was £20,000.
When can I withdraw money from my Lifetime ISA?
A Lifetime ISA is a type of locked-in savings account.
You can only withdraw money without incurring any penalty if you fullfil one of these requirements:
- You are buying your first home and are fulfilling the requirements associated with that.
- Your are at least 60 years old.
- You are terminally ill and predicted to die in less than 12 months.
It is still possible for you to withdraw from your Lifetime ISA even if you do not fulfill any of these requirements, but that transaction will come with a penalty: you have to pay a 25% withdrawal charge.
Transfering to another ISA
If you transfer the Lifetime ISA to another type of ISA before you have reached the age of 60, you must pay a 25% transfer charge.
Using the Lifetime ISA to buy a home
One of the reasons why the savings account type Lifetime ISA was created was to help people in the UK to save for their first home purchase.
You can use your Lifetime ISA savings to help fund your home purchase if you fulfil the requirements.
- It must be your first home purchase.
- The property must cost £450,000 or less.
- You must be obtaining a mortage as well.
- There must be at least 12 months beteween your first payment into your Lifetime ISA and the purchase of the home.
- A conveyancer or solicitor must be used to act for your in the purchase. The Lifetime ISA provider will send the funds directly to them.
The Lifetime ISA is one of five Individual Savings Accounts (ISA:s) available in the United Kingdom, and you may be eligible for several of them simultaneously.
In addition to the Lifetime ISA, there is the:
- Cash ISA (for those 16 years and up)
- Stocks and shares ISA (for those 18 years and up)
- Innovative finance ISA (for those 18 years and up)
- Junior ISA (for those under 18 years of age)
Each type of ISA comes with its own set of rules, so it is important that you read the fine print. For some investors, setting up a combination of more than one type of ISA is the best choice, to take full advantage of the various opportunities.