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Mar 2016

​Lifetime ISA – How does it work?

​Lifetime ISA – How does it work?

The Lifetime ISA will provide a new way for 18-40 year olds to save for both their retirement and the purchase of their first property.

Lifetime ISA – How does it work?

If you are aged between 18 and 40 years old, and you're either looking for a way to save to buy your first property or for your retirement then a lifetime ISA might be the right savings solution for you. But how exactly does it work?

The Lifetime ISA was announced by the government in the March 2016 Budget, although not available until April 2017, Lifetime ISAs have been designed to allow individuals to save simultaneously for their retirement as well as to buy a home for the first time and will be available in both cash and investment incarnations.

25% Bonus 

In addition to benefiting from the tax-advantageous nature of ISAs, when savers use the money within a lifetime ISA for either of the two stated reasons the Government will contribute a 25% bonus, which essentially means savers could gain and additional £1 for every £4 they put into the lifetime ISA. This bonus will be paid annually so interest can be earned on it thereafter.


You have be under 40 years old in order to open a Lifetime ISA and savers will be eligible to receive bonuses on contributions up until their 50th birthday. The maximum a saver can contribute each year into their lifetime ISA is £4000, meaning they could potentially benefit from a £1000 bonus for each year, if their savings are eventually used for their retirement or a first time home purchase.

The money contributed into a Lifetime ISA sits within your overall ISA Allowance. You are permitted to have other ISAs such as; a Cash ISAStocks and Shares ISA and a Help to Buy ISA in addition to a Lifetime ISA however savers will not be able to benefit from the bonuses of both their Help to Buy ISA and Lifetime ISA so will need to pick which one they want to receive.

Getting the bonus

In order to get their top-up from the government, savers have to use the funds contained within their Lifetime ISA to either purchase a home for the first time or for their retirement.

Savers looking to use their ISA to purchase all or put down a deposit on a property, must have never owned property before, and be intending to use the property as their home, purchases of investment properties such as buy to lets will not qualify. The maximum value of the property must also not exceed £450,000 in order to eligible for the government top-up. Any money left in the account after it has been used to fund the deposit/purchase of a property can still be used for retirement.

When a saver reaches 60 years old they may withdraw any amount of money they like from their Lifetime ISA and will benefit from the 25% bonus on it for their retirement.

Other Withdrawals

If a saver wants to take money out before their 60th birthday and for a reason other than the purchase of their first property they can do so, however they will lose out on the bonus as well as any interest and incur a 5% charge on the amount withdrawn. 

Find out more about Lifetime ISAs by clicking here.

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An ISA is an individual savings account that offers the chance for individuals to earn up to £20,000 tax-free interest.Not only can those who subscribe to an ISA benefit from tax-free interest from savings, but also enjoy the freedom to invest from their ISA and avoid paying tax on their returns.

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