It’s important to understand how a Lifetime ISA (Individual Savings Account) can help you either buy your first home or save for later life. If you’re between 18 and 40 years old, you can open a Lifetime ISA and take advantage of government bonuses on your savings.

With a Lifetime ISA, you can contribute up to £4,000 each year until you turn 50. Your first payment must be made before you reach 40. The government will add a 25% bonus to your savings, giving you up to £1,000 extra per year. Keep in mind this yearly £4,000 limit counts towards your overall ISA allowance, which is £20,000 for the 2025 to 2026 tax year.

You have the flexibility to hold cash or stocks and shares within your Lifetime ISA, or even a combination of both. Once you turn 50, you can no longer pay into your Lifetime ISA or earn the government bonus, although your account will remain open and your savings will continue to grow through interest or investments.

To open and contribute to a Lifetime ISA, you generally need to be a UK resident. If you are a crown servant, like someone in the diplomatic service or their spouse or civil partner, this rule does not apply.

Withdrawing Money from Your Lifetime ISA

You can take money out of your Lifetime ISA without penalty if you are:

• Buying your first home
• Using the money after you turn 60
• Facing terminal illness
• Or if you died (in which case your account closes and funds can be withdrawn without a charge)

If you withdraw money for any reason other than these, you will need to pay a 25% withdrawal charge. This charge effectively recovers the government bonus added to your original savings.

For example, if you have savings of £800 plus a government bonus of £200, your pot is £1,000. If you withdraw the full amount for a reason other than the allowed ones, you will pay a £250 charge and end up with £750. If you only need part of this money, you must withdraw enough to cover what you want plus the 25% fee. For instance, to cover a £120 expense, you would need to withdraw £160, paying £40 in charges.

Using Your Lifetime ISA to Buy Your First Home

You can use your Lifetime ISA savings to buy your first home if certain conditions apply. Your first home must be in the UK and meet specific property value limits. You cannot use your Lifetime ISA to buy a home with a private mortgage.

If you’re buying a property with someone else, and they also have a Lifetime ISA, you can both use the savings and government bonuses to help with the purchase. Certain eligibility rules must be met for both individuals.

Additionally, if you have a Help to Buy ISA, you can only use the government bonus from either your Help to Buy ISA or your Lifetime ISA, not both. You can transfer money from a Help to Buy ISA to a Lifetime ISA, but transferring the other way will lead to the 25% withdrawal charge.

Saving for Later Life

Once you are 60 or older, you can withdraw your Lifetime ISA savings without any charge. However, if you withdraw funds or transfer your Lifetime ISA before 60 for reasons other than those allowed, the 25% charge will apply.

A Lifetime ISA is one way to save for retirement or later life, alongside other options available to you.