A Lifetime ISA (LISA) is a good starting point to start saving for your first home or for your retirement. It is a type of tax-free Individual Savings Account (ISA) for UK residents, which is topped up with a government bonus.

Opening a Lifetime ISA
Are you eligible?

Anyone aged between 18 and 39 can open a Lifetime ISA, if they are a resident in the UK, or are a Crown servant (meaning working at a diplomatic or overseas civil service), as well as their spouse or civil partner. For children between 16 and 18, Junior ISA accounts are available.

If you plan to buy a home with someone else who is also a first-time buyer, you can each open an account and start saving money into your own account. When you decide to buy, you can use the two accounts combined, provided you both match the eligibility criteria.

Opening a Lifetime ISA
Where to look for Lifetime ISAs?

You can open ISAs with banks, credit unions, stockbrokers, peer-to-peer lending services, crowdfunding companies, building societies (organizations owned by their members, which offer banking and other financial services), friendly societies (mutual associations with a common financial purpose), and other financial institutions.

Opening a Lifetime ISA
How to choose a provider?

It is best to compare the different providers. There are several aspects you might want to take into consideration when deciding between account managers. These include how much interest the provider offers, whether they charge for transferring your savings, and if the Financial Services Compensation Scheme (FSCS) covers them, which means that your savings and investments are protected up to £85,000. Once you have chosen a provider, you'll need to apply to open an account directly with them.

You can only invest a maximum of £4,000 in a tax year in a LISA, and the state adds a 25% cash bonus a year on top of your investments, meaning a total £5,000 a year if you invest the maximum amount. Plus you earn interest on what you have saved, which is tax-free. 

You can invest in either a cash ISA or a stocks and shares ISA, or have a combination of both for your Lifetime ISA. Keep in mind that the amount you invest in your Lifetime ISA will be deducted from the maximum ISA allowance you can save annually, which in the 2021/2022 tax year is £20,000. This means that if you invest £4,000 in a Lifetime ISA, you can use the remaining £16,000 to invest in other types of ISAs.

You can hold multiple Lifetime ISAs at once; however, you can only open and pay into one Lifetime ISA in each tax year. If you want to change providers, you can transfer your account with the entire sum. 

Some financial institutions allow you to open a Lifetime ISA with as little as £1. The earliest you can use the fund is one year after making your first deposit. 

Opening a Lifetime ISA
What happens if I want to withdraw my money?

Bear in mind that if you withdraw money from your account before you hit 60 for any other reason than buying your first home, you will be charged 25% of the amount withdrawn, essentially wiping out the government bonuses you received on your investments over the years. 

Author of this article

Gergely Korpos

Author of this article

Gergely is the co-founder and CPO of BrokerChooser. His aim is to make personal investing crystal clear for everybody. Gergely has 10 years of experience in the financial markets. He concluded thousands of trades as a commodity trader and equity portfolio manager.

Gergely Korpos

Co-founder, CPO

Gergely is the co-founder and CPO of BrokerChooser. His aim is to make personal investing crystal clear for everybody. Gergely has 10 years of experience in the financial markets. He concluded thousands of trades as a commodity trader and equity portfolio manager.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

Share

Comments

×