How do lifetime ISAs work?
Lifetime ISA were introduced by the UK government in April 2017 to offer longer-term tax-free savings for UK taxpayers. They can be used to save towards a first home or your retirement and the government will give you a bonus of 25% of the money you save, up to a limit of £1,000 per year.
As with any other type of ISA, you will not pay tax on the interest, income or capitals gains you earn from a lifetime ISA. Lifetime ISAs can be taken alongside other ISAs, just as long your total ISA savings do not exceed the UK government ISA threshold for the given tax year. For the 2018/19 tax year, this is £20,000.
Lifetime ISAs can be used for cash, stocks and shares, or a combination of all three.
How much can you save with a lifetime ISA?
You can save up to £4,000 a year in a lifetime ISA and can keep paying into it until you are 50. This means if you start your lifetime ISA when you turn 18 and save the maximum amount each year, you could theoretically save up to £128,000, earning a government bonus of £32,000.
Who can get a lifetime ISA?
To get a lifetime ISA you must be:
- Aged 18-39
- A UK resident (or a Crown Servant or the spouse/civil partner of a Crown Servant)
Using your lifetime ISA to buy a first home
If you choose to use your lifetime ISA to buy a first home, there are several conditions you must meet:
- The property must be worth less than £450,000
- You must be buying the property with a mortgage
- You must use a solicitor or conveyancer to act for you in the purchase (the funds will be paid directly to them by your lifetime ISA provider)
- Your ISA must have been open for at least 12 months
If the purchase does not meet these conditions, you will have to pay a withdrawal charge of 25% of the balance you withdraw.
If you are buying the house with a partner and you each have a lifetime ISA, you can both use money from your ISAs without paying a withdrawal charge, as long as you are both first time buyers.
Withdrawing money from a lifetime ISA
You can withdraw money at any time from your ISA, but if you are under 60 and are not using the money for a qualifying first home purchase, you will have to pay a withdrawal charge. This will be equal to 25% of the money you withdraw.
You will not have to pay a withdraw charge if:
- You use the money to buy a qualifying first home
- You are aged 60 or above
- You are terminally ill with less than a year to live
- You are moving your lifetime ISA to a different provider
In the event of your death, your lifetime ISA will end on the date of your death and there will be no withdrawal charge applied when the funds or assets are removed from your account.
Can you transfer your lifetime ISA to a different provider?
Yes, you can transfer your lifetime ISA to a different provider at any time without paying a withdrawal charge. This process should take no longer than 30 days.
Compare lifetime ISAs
Many different providers offer lifetime ISAs. To find out more, including which providers are currently offering the best interest rates, take a look at our Lifetime ISAs.