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What is a Lifetime ISA (LISA)? Rules, bonuses, and changes

A Lifetime ISA (LISA) is a type of ISA (Individual Savings Account). An account is one way to save for the future as part of a dedicated savings and investment strategy. As an incentive, the government also adds a bonus to top up your savings.  

But unlike standard ISAs, Lifetime ISAs aren’t available to everyone. There are also strict rules for withdrawing funds. In this article, we look at how they work and what you need to know about proposed changes.  

Updated: 28.10.26

By Paul Steed

This content was factually correct when written but may not reflect current developments or information.

What is a lifetime isa?

What is a Lifetime ISA? 

A LISA is a tax-efficient, long-term savings account for people saving for their first home or retirement.  

You can pay in up to £4,000 each tax year; this counts towards your annual ISA limit, which is currently £20,000. The government will also add a 25% bonus, up to a maximum of £1,000 per year. 

You can withdraw funds from your LISA if you’re: 

  • Buying your first home 

  • Aged 60 or over 

  • Terminally ill with only 12 months to live 

If you’re using your LISA to save for retirement, you can pay money into it until you’re 50; the government bonus will also stop at this point. Your account will stay open and can still earn interest or make investment returns. 

Beware of the 25% early withdrawal penalty 

If you need to access your money for any other reason than those outlined above, you’ll be charged an ‘unauthorised withdrawal fee’ of 25% of the value you withdraw. You can find more details at GOV.UK, Lifetime ISA. 

Key rules and limits of a Lifetime ISA 

Rules apply to who can open a LISA and when you can withdraw funds. To open a LISA, you must be: 

  • At least 18 years old but under 40 

  • A UK resident, or serving abroad in the armed forces or working for the civil service. You can also open an account if you’re living abroad but married or in a civil partnership with someone who is deployed 

If you’re using your LISA to buy your first home, you’ll need to meet these conditions: 

  • Funds can only be used to buy property that costs £450,000 or less 

  • Your LISA must be open for at least 12 months before you buy a property 

  • You’ll need to buy the property with a mortgage and hire a conveyancer or solicitor to manage the purchase 

Exceptions 

You won’t be able to use your LISA funds to buy a home if you’re getting a private mortgage from: 

  • A relative or someone married to a relative 

  • Your spouse or civil partner or a relative of theirs 

Can two people with a LISA use their combined funds? 

Yes. If you’re buying a house with someone else and they also have a LISA, you can combine your funds, including your government bonuses. However, you must both be first-time buyers and meet all the other conditions (such as buying a home costing £450,000 or less).  

Why you should open a LISA early

The “£1 trick” is a popular savings strategy that works on the basis that a LISA must be open for at least 12 months before you can access funds. Opening an account with just £1 triggers that 12-month window so you can withdraw money without being penalised.  

Another benefit of opening a LISA early on is that it protects your ability to choose whether you use the funds to buy your first home or save it for retirement. Currently, the government is consulting on discontinuing the LISA in favour of an alternative First Time Buyer ISA (FTB ISA) instead.  

Cash LISA vs. stocks and shares LISA 

You can choose to save your money in a cash LISA, a stocks and shares LISA, or a combination. Both are subject to the same rules, but the way your money is invested is slightly different: 

Cash LISA 

A cash LISA works in a similar way to a standard savings account, so you can choose an account with either a fixed or variable interest rate. This type of account is low risk, and if you choose a fixed-rate account, your returns will be predictable. Cash LISAs typically don’t have fees, so you won’t need to factor in additional costs.  

Cash LISAs are often better if your goals are short-term (up to five years), as your savings should grow steadily and predictably.  

Stocks and shares LISA 

With a stocks and shares LISA, your money is invested in bonds and stocks and shares, for example, government bonds or shares in corporate organisations.  

The nature of stocks and shares mean these types of LISA can be unpredictable as your investments can go up or down depending on the market. There is also a risk that you put in more than you get out as returns aren’t guaranteed.  

Bear in mind that you’ll also need to pay management fees for a stocks and shares LISA, which can lower your returns. Because of the risks, stocks and shares LISAs are aimed at long-term savers that have the time to let their investments mature.  

Are Lifetime ISAs changing? 

The government is currently consulting on phasing out the LISA in favour of a new First Time Buyer ISA (FTB ISA). The biggest difference is that the proposed FTB ISA can only be used to buy property; unlike the LISA, it cannot be used to save for retirement.  

As it stands, proposals for the FTB ISA suggest that there will be some similarities with the LISA, in that the amount saved each year will be limited. There is likely to be a cap on the value of the home purchased too.  

You can read about the government’s proposals in more detail at GOV.UK, First Time Buyer ISA.  

FAQs 

Planning for your financial future 

Lifetime ISAs are just one way to save for the future, whether that’s to buy your first home or as part of your retirement planning strategy. But whether a LISA is right for you will also depend on your broader financial circumstances.  

The value of investments and any income from them can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future. The value of tax benefits depends on your individual circumstances. Tax laws can change.

Speak to our independent financial advisors

If you’d like to talk about what your savings strategy might look like and explore your options, speak to one of our independent financial advisers. To find out more about what we offer, visit our financial advice hub.  

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