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23rd
Dec 2020
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What is a lifetime ISA

What is a lifetime ISA

The lifetime ISA was launched in 2017 as a savings vehicle that younger people can use either to provide funds for buying a first time home, or to save for their retirement.

What is a lifetime ISA?

The lifetime ISA was launched in 2017 as a savings vehicle that younger people can use either to provide funds for buying a first time home, or to save for their retirement.

If you start saving for retirement early in your working life, then the value of your final pension pot can be significantly higher. However, for many younger people, it is very difficult to save for retirement as their priority is often to get on the housing ladder.

The lifetime ISA is a tax free savings account designed to assist in this respect, as it allows people to make contributions, then at a later stage they can decide whether to use the funds for property purchase or for retirement savings.

How does it differ from other ISAs?

The differences between lifetime ISAs and other ISAs include:

The standard ISA allowance is £20,000, but you can only contribute £4,000 per tax year to a lifetime ISA. (You can still contribute up to £16,000 to other forms of ISA if you use your full lifetime ISA allowance)

Other forms of ISA are open to all UK adults, but you need to be aged between 18 and 39 to open a lifetime ISA, and you can only make contributions until age 50

The Government will contribute an extra 25% to your lifetime ISA on your behalf, so if you contribute £4,000, you will receive an extra £1,000. In this respect, it is similar to the tax relief provided on personal pension contributions

You normally have the right to withdraw the funds from other types of ISA, but you should only withdraw your lifetime ISA funds if:

  • You are aged 60 or over - and are therefore accessing them for your retirement
  • You are purchasing your first home
  • You are terminally ill with less than 12 months to live

Withdrawals for any other reason will result in significant charges being levied – you will lose 20% of your investment, rising to 25% from April 6 2021

Where can I invest via a lifetime ISA?

You can invest your lifetime ISA contributions in cash, stocks & shares or a combination of both. Not all ISA providers offer a lifetime ISA so it is worth using a specialist site like this one to see what is available. You can use our ISA calculator to get an idea of what growth you might enjoy based on an assumed rate of growth.

What conditions apply to house purchases via a lifetime ISA?

If you use your lifetime ISA savings to purchase a home, then all of the following requirements must be satisfied:

  • It must be your first property purchase
  • You must be planning to live in the property
  • The property must cost £450,000 or less
  • You must wait at least 12 months after opening the lifetime ISA before purchasing
  • You must purchase the property using a mortgage
  • You must engage a solicitor or conveyancer to act on your behalf during the buying process

What if I’ve already got a Help To Buy ISA?

Help To Buy ISA was a previous Government initiative to assist people to get on the housing ladder. You can no longer open a new Help To Buy ISA.

If you have both a Lifetime ISA and a Help To Buy ISA, you can only use the government bonus from one of these towards the purchase of a home.

You can transfer your Help To Buy ISA to a Lifetime ISA.

Example of a lifetime ISA

This example assumes no growth on your money. So for an initial contribution by you of £800, the government will add an extra £200 (25%) bonus to take your lifetime ISA pot up to £1,000.

If you were to withdraw money for reasons other than buying a home or for retirement then then the government bonus will need to be paid back.

How do I use a lifetime ISA to buy my first home?

So the property you are buying will need to not be valued at more than £450,000. The property purchase needs to be at least 12 months after you opened your lifetime ISA account.

Your lifetime ISA provider will pay the funds in your account to your solicitor dealing with the property transaction. You need to be buying the property using a mortgage.

See below for a selection of lifetime ISA providers:

Lifetime ISAs

Lifetime ISA

from Hargreaves Lansdown

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Over 2,500 Funds, Investment Trusts, Bonds, ETF's or Cash
  • Invest From: £100 single or £25 per month

Why we like it: Easy set up in a matter of minutes. Start with as little as £25 and save up to £4,000 per year. Wide choice of stock market linked investments, or can be retained in cash. Fund factsheets and investment tools available. Simple annual management fee of 0.45%. There may be some other charges depending on the investment choices. Hargreaves Lansdown are regulated by the Financial Conduct Authority and are covered by the Financial Services Compensation Scheme. Capital at risk.

  • Open in five minutes
  • Open with lump sum, regular contributions or transfers from existing ISA's
  • Contribute up to £4,000 per year until you’re 50
  • Get a 25% government bonus: For every £4 you invest you receive a £1 bonus
  • Use your savings to buy your first home up to a value of £450,000, or use as retirement income
  • You can contribute to both a stocks and shares Lifetime ISA and a ‘regular’ stocks and shares ISA in the same tax year
  • Must be UK resident aged 18-39
  • If you need to access your money for any other reason, you’ll pay a 25% penalty
  • Annual account charge of 0.45%
  • Dealing and other charges will depend on the investments you choose and will apply in addition to our annual account charge
  • Tax rules can change and their benefits depend on your circumstances. Lifetime ISA allowance forms part of the overall £20,000 annual allowance

Lifetime ISA

from Nutmeg

  • Protection Scheme: FSCS
  • Fund Choice: Fully Managed or Fixed Portfolios
  • Invest From: Min. Pay in from £100 to £4,000 to start your Lifetime ISA.

Why we like it: Simple annual portfolio management fee from 0.45% to 0.75%, incl VAT. There are also some underlying fund costs and market spread charges. Easy, online set up in minutes. Start with as little as £100 up to £4,000. Plus, live chat, helpful customer support and really useful investor tools and guides. Nutmeg are regulated by the Financial Conduct Authority and are covered by the Financial Services Compensation Scheme. Capital at risk.

  • Nutmeg Lifetime ISA: Invest in high-quality, low-cost exchange traded funds
  • Contribute up to £4,000 per year until you’re 50
  • Get a 25% government bonus: For every £4 you invest you receive a £1 bonus
  • Use your savings to buy your first home up to a value of £450,000
  • You can contribute to both a stocks and shares Lifetime ISA and a ‘regular’ stocks and shares ISA in the same tax year
  • Must be UK resident aged 18-39
  • If you need to access your money for any other reason, you’ll pay a 25% penalty
Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

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