Lifetime ISAs for First Time Buyers and Retirees

A piggy bank on top of a pile of coins, next to a calculator, pen and sticky notes
Author: Samuel Beckingham
Updated: Oct 18, 2023
4 minutes read

What is a Lifetime ISA?

Lifetime ISAs are a little different to the traditional cash type. Where you can easily access the funds in a cash ISA, you won’t get charged on any interest the money makes. Lifetime ISAs, or LISAs, give you state-backed funding but you will receive penalties for withdrawing funds early. They are designed to help first time buyers or to fund retirement.

LISAs give you a 25% bonus from the government towards your contributions. A more generous £4,000 can be paid into a LISA every year, which gives you a maximum extra £1,000 from the state. If you maximise your contributions, this is the equivalent of an additional £32,000.

How to Use a LISA

When it comes to using a LISA, this will be when you come to buy your first home and need the money for a deposit, or you reach 60 years old. In the instance where you use it as a first time buyer, you can retain the account and keep paying into it for your retirement. This means you can keep benefitting from the government bonuses once the bulk of the homebuying challenge is out of the way.

The 25% Bonus

The way LISAs work is that you get a 25% bonus on your savings after a year. For £1,000 amounts, this will be £250; the full £1,000 bonus is achieved if you manage to bank £4,000. This bonus is on top of any interest the account has as well, making your money go further. The 25% help only applies to contributions and is paid monthly.

As with all ISAs, all interest made on the account is tax free. Every financial tax year is limited to a £20,000 limit, but the government bonus doesn’t count towards this. While you can only open a single LISA a year, you can continue to add outstanding contributions to other ISAs that you open in subsequent years. Other ISAs come in the form of cash and investment types.


To be able to open a LISA, you need to be 18–40 years old. The maximum amount you can receive is only available if you open an account on your 18th birthday and keep paying into it as much as possible. The only disadvantage is that you are penalised if you withdraw any amount early for reasons other than putting towards a deposit for your first home, or for your retirement.

Just like the bonus is 25% on contributions, any withdrawals suffer a 25% penalty. On paper, this looks like it will counteract the government bonus. In reality, it works out less in your favour than this. For example, if you save £1,250 in one year, you’ll receive £312.50 as a bonus. If you then decide to withdraw the £1,560.50 amount, the 25% penalty will only give you £1,170.37. It’s far easier, and more worth your while, to keep paying into a LISA and only use it for its intended purposes.

Once you reach 50 years of age, you can no longer contribute to the LISA or receive the 25% bonus. Instead, any funds will grow with interest or investments. Critics of the LISA are quick to point out that, for retirement, using a LISA for retirement is only useful for the self-employed. Anyone whose employer pays into a pension scheme will receive a better deal through their pension.

As with all financial products, it pays to shop around to find the best deal for you. You’ll need to understand the terms and conditions before you open up a LISA to not be caught out by nasty surprises down the line.

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