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Couple with a Lifetime ISA sitting indoors decorating

 

A Lifetime ISA is a tax-efficient savings account available for UK residents aged 18 – 39. Introduced by the Government in 2017, the Lifetime ISA is beneficial if you’re looking to save towards buying a first home or building up a savings pot for later on in life, with a generous 25% Government bonus for every contribution you make.

The savings grow free of UK income and Capital Gains Tax, meaning you don’t have to pay tax on the amount you save.

The Lifetime ISA is one of several types of ISAs available, including Cash ISAs, Stocks and Shares ISAs and Junior ISAs for saving on a child’s behalf. Learn more about ISAs >

 

I want to learn more about using a Lifetime ISA towards a first home >

I want to learn more about using a Lifetime ISA to save for later on in life >

 

Types of Lifetime ISAs

There are two types of Lifetime ISAs available – a Stocks and Shares Lifetime ISA and a Cash Lifetime ISA.

The aim of a Stocks and Shares Lifetime ISA is to provide better growth in the long-term. Stocks and shares are bought and sold on stock markets where companies can sell part of their business to try and raise more capital (money). Our Lifetime ISA invests in stocks and shares. This means that your money is investing in companies listed on the world’s stock markets and when they gain profit, the money in the Lifetime ISA could grow if the prices of the shares rise. The risk is that the value of the investment can fall as well as rise and you may get back less than has been paid in.

With a Cash Lifetime ISA, you are guaranteed a return at the advertised interest rate. When interest rates are low, there is risk that the investment may not keep up with inflation.

 

Can I open a Lifetime ISA?

If you are a UK resident aged 18 – 39, you can open a Lifetime ISA, where you can use your savings towards buying a first home or for later on in life.

If you want to use your Lifetime ISA towards your first home, you must be a first-time buyer and the value of the property in the UK must be no more than £450,000 and purchased by means of a mortgage.

If choosing to save for later on in life, you can contribute into the Lifetime ISA up until age 50 and will be able to access this money from age 60.

 

How much can be saved into a Lifetime ISA?

The Lifetime ISA annual allowance is currently £4,000 this tax year. You will receive a 25% bonus from the Government for every contribution you make up to the £4,000 limit. This means for every £4 you contribute you get £1 from the Government, and if you were to save the maximum of £4,000 into your Lifetime ISA, you will receive a bonus contribution of £1,000. This bonus is added to every contribution you make into your Lifetime ISA. That means that if you start saving from age 18 and continue to contribute the maximum up to the age of 50, up to a further £33,000 would be added from the Government. The savings can be encashed free of UK income and capital taxes any time after your 60th birthday.

The overall annual allowance for all ISAs is £20,000, of which £4,000 can be saved into a Lifetime ISA each tax year.

 

Can I make an encashment (withdraw) from my Lifetime ISA?

You can make an encashment from your Lifetime ISA. However, please note any encashments before age 60, other than towards the purchase your first home, will result in a Government penalty of 25% on the encashment amount. This means you may get back less than you paid in.

This 25% Government penalty will also apply if you transfer money out from your Lifetime ISA to another type of ISA or savings account.

 

The Government Penalty

If you encash (withdraw) money from the Lifetime ISA for any reason other than towards purchasing your first home in the UK before age 60, then the Government penalty of 25% will apply. The Government penalty effectively reclaims the original Government bonus, plus any growth from the bonus money, and also applies a penalty so you may get back less than you have paid in.

 

 

Using your Lifetime ISA towards a first home

If you wish to use your Lifetime ISA element for buying a first home, it must be a home in the UK up to the value of £450,000. As the Lifetime ISA limit applies to each individual, you and a partner (if eligible) can have separate Lifetime ISAs and combine your savings to purchase your first home together.

You need to have a Lifetime ISA for at least 12 months before using it towards the purchase of a first home for which you are obtaining a mortgage.

Find out how to use your Lifetime ISA towards a first home >

  

What’s the difference between a Lifetime ISA and Help To Buy ISA?

Like the Lifetime ISA, the Help to Buy ISA is a type of ISA designed for helping purchase a first home, however you can no longer open a Help To Buy ISA. A Lifetime ISA can also be used towards later on in life and not just for purchasing a first home.

Learn more about the differences between a Lifetime ISA and Help To Buy ISA >

If you have a Lifetime ISA and a Help to Buy ISA, you will only be able to claim the Government bonus from one towards purchasing a first home. The money in a Lifetime ISA can also be used for later on in life.

My partner/spouse and I have a Lifetime ISA. Can we use them together to buy a home?

If you and your partner/spouse are both first-time buyers, you can use your Lifetime ISAs towards buying your first home.

Can I use a Lifetime ISA to purchase a new build?

Yes, as long as your property is in the UK and valued at no more than £450,000, you can use a Lifetime ISA to buy new builds. You will also need to be a first-time buyer.

Can I use a Lifetime ISA to purchase a flat/apartment?

You can use a Lifetime ISA to purchase a flat or apartment in the UK, as long as you are a first-time buyer and the property is no more than £450,000.

What type of property can I purchase with a Lifetime ISA?

As long as the property you purchase is of a legal interest in land, you can use a Lifetime ISA to buy a first home. One property excluded from this is a houseboat.

Your property should be in the UK and valued at no more than £450,000. This includes apartments and new builds.

Can I use my Lifetime ISA towards buying a Shared Ownership property?

It is possible to use your Lifetime ISA to buy a Shared Ownership home. The value of the property should not exceed £450,000.

 

 

Using your Lifetime ISA for later on in life

If you are saving for later on in life, you can contribute to the Lifetime ISA element up until age 50, and the Government will continue to add the bonus each time you contribute.

The money in your Lifetime ISA element can be encashed any time after your 60th birthday with no government penalty.

 

Should I save in a Lifetime ISA instead of a pension?

Since the Lifetime ISA can be used for later on in life, similar to personal or workplace pensions, you may be wondering what could work best for you and your finances.

If you use a Lifetime ISA to purchase a first home, you can still later save for yourself up until age 50. You can then access the money again on your 60th birthday. Therefore if you are a first-time buyer, you could treat your Lifetime ISA as having two savings pots under one Plan – for a first home and then later on in life.

If you choose to save in a Lifetime ISA instead of a workplace pension, you could lose the benefit of employer contributions and unlike the value of a pension savings, the value of a Lifetime ISA could affect any entitlement to means tested benefits.

If you want to discuss your options with a Lifetime ISA, you can speak to one of our Financial Advisers.

Should I save in a Lifetime ISA instead of a pension?

If you have more queries about ISAs as a form of savings, our Guide to ISAs article could be useful. If you're ready to save for your first home, open a Lifetime ISA online with Foresters Financial today.

 

 

A Lifetime ISA with Foresters Financial

Our Lifetime ISA is a Stocks and Shares Lifetime ISA.

Our Forester Life ISA is made up of a Stocks and Shares ISA element and a Lifetime ISA element, where you can choose to have one or both ISAs. This allows you to keep all your savings in one place and allows you to split your savings from only £10 into each ISA. You can start saving from as little as £20 into your ISA. You also have the opportunity to move money at any time from your Stocks and Shares ISA element into your Lifetime ISA element. Learn more about saving in our ISA >

For more information about our Lifetime ISA, you can also speak to one of our Financial Advisers through a face-to-face or video appointment. Book an appointment >

 

Can I transfer my ISA to Foresters?

If you already have a Cash or Stocks and Shares ISA with another provider, you can transfer your ISA to us.

Please note we do not accept transfers from Lifetime ISAs to our Lifetime ISA element.

We do not charge any entry, exit or transfer fees. However, you should check with your existing ISA provider whether they charge for transferring away from them.

 

 

Things to consider when opening a Lifetime ISA

Tax treatment depends on individual circumstances and may be subject to change in the future.

As with all stock market investments, the value of your ISA can fall as well as rise and you may get back less than has been paid in.

A Lifetime ISA element must be held for at least 12 months before you can use the money towards purchasing a first home in the UK up to the value of £450,000. By saving into a Lifetime ISA element instead of a workplace pension, you could lose the benefit of employer contributions and the value could affect any entitlement to means tested benefits. If you make an encashment before age 60, other than to purchase your first home, you will pay a government penalty of 25% on the encashment amount.

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