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22nd
Nov 2020
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How to Use Your Lifetime ISA Allowance

How to Use Your Lifetime ISA Allowance

Every UK resident over the age of 18 has a yearly Lifetime ISA allowance which they can pop into a LISA to gain very attractive returns and gains year-on-year. But what is the allowance, and what's the best way to make the most of yours? 

What is a LISA?

A Lifetime ISA (LISA) is a type of ISA which is designed specifically for long-term savings.

These are a tax-efficient wrapper where you can put your money to gain interest or returns, and also a 25% bonus from the government. For this (very attractive) ISA, there are strict regulations, including…

  • You can only put in £4000 per year
  • You can only pay into one LISA each year
  • You can only hold two LISAs in one lifetime
  • You can only withdraw your funds for two specific reasons (outlined below)
  • The earliest you can take money out of your ISA is one year after opening the account

This is because these are designed for long-term life long saving – as the name would suggest.

How can I use it?

You can use your LISA for two purposes:

  • To pay for a deposit for your first home
  • To fund retirement

If you take your money out for any other reason, then you will loose the 25% bonus as well as potentially being subject to extra penalty charges, depending on your account and provider.

How can I maximise my allowance?

The main way to maximise your LISA allowance is by putting as much as possible of your spare cash into the account each year as possible.

With an ISA, the amount you make is dependent on what you put in.

If the LISA limit is £4000, and you get a 25% bonus than you could stand to get a cash injection of £1000, which is a return rate which you will struggle to find elsewhere.

So, for example…

If you open a LISA at 18, and put in £4000, you’ll receive the 25% bonus. This would leave you with £5000 in the bank.

If you continue to save that rate, year on year, then by the time you reach retirement you would have saved £132,000 of your own money – and received a very healthy bonus of £33,000 in total bonuses.

This is assuming you only have one LISA and so not use it to help fund you first home, however even if you do this, you would still have a fairly healthy return and the majority of house deposits for first-time buyers sit at a 5-10% of the total value. Considering the average house is £230,000 approximately, then you’ll only have to knock off £23,000 off the total potential saving.

Also – if you are part of a couple, then you are able to put two LISAs towards a house deposit – meaning you can get double the benefit and get double the boost. This is of course assuming you are buying the property under a joint mortgage.

When can I access my Lifetime ISA allowance?

There are only a few instances when you can access your LISA funds. These are:

  • When buying your first home
  • When you reach the age of 60

There are some exceptions to this, for example if you have been diagnosed with a terminal illness then of course you will be able to access your funds when you require them. 

Read more about Lifetime ISAs here.

Lifetime ISAs

Lifetime ISA

from AJ Bell

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Over 2,000 Funds, Shares and ETF's
  • Invest From: £25 per month
  • Trade From (frequent trader rate): £4.95
  • Trade From (standard trader rate): £9.95

Why we like it: Start from £25 per month and save up to £4,000 per year. Wide choice of stock market linked investments, or utilise online investment ideas. Can be retained in cash. Simple annual management fee of 0.25%. Deal from £1.50 and never pay more than £9.95 per online deal. AJ Bell are regulated by the Financial Conduct Authority and are covered by the Financial Services Compensation Scheme. Capital at risk. AJ Bell Youinvest doesn’t offer advice.

  • Select your own investments, access fund options, or choose investment ideas where specialists do the hard work for you
  • Access your account online 24/7 and deal on the go with the mobile app
  • UK-based customer services team, webchat and email support
  • 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 pay in 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 from aged 60
  • 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 to open
  • If you need to access your money for any other reason, you’ll pay a 20% penalty (25% from 6 April 2021)
  • Annual account charge of 0.25%
  • Dealing and other charges will depend on the investments you choose and will apply in addition to an 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 ISA allowance
  • Tax and Lifetime ISA rules apply
  • If you choose to save in a LISA instead of enrolling in, or contributing to, your workplace pension you will miss out on the benefit of your employer’s contributions to that scheme and your current and future entitlement to means tested benefits may be affected

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
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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