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Lifetime ISA (LISA) FAQ

Kieran Witt, 13 July 2023

Lifetime ISA

What’s this article about?

Curious about the Lifetime ISA bonus? Learn how to get up to £1,000 towards your first home, when you'll receive it, and how to avoid penalties. Curious about the Lifetime ISA bonus? Learn all about it in this article.

Heard about the Lifetime ISA (LISA) bonus? Not sure what it is or when you can get it? Don't worry, we're here to help; here are some quick-fire answers.

What's a Lifetime ISA?

A Lifetime ISA (LISA for short) is a type of savings account that allows you to save and invest free from tax. What makes it special and why it’s great for homebuyers is that the government also gives those who use a Lifetime ISA a bonus for using it, more on that next but first there are a few rules:

  • You need to be aged 18 to 39 to open one
  • You’ll be penalised if you take out the money for anything other than buying your first home or retirement

If you’re not using a LISA already you should check them out!

Why all the fuss about LISA’s?

One of the most significant benefits of a Lifetime ISA is the bonus. You can receive up to £1,000 towards your first home every tax year, which runs from April to April. The government gives you 25% on whatever you save, up to the maximum annual bonus of £1,000. If you open a LISA at 18 and save £4,000 every year until you're 50, you could receive up to £33,000 in bonuses, although you'll probably want to buy a home before then.

What if I don’t have £4,000 to save?

You don't have to save £4,000 every tax year to receive the bonus. The government provides a 25% bonus on any amount you save, up to the maximum limit of £4,000 per tax year. For example, if you save £100, you'll receive a £25 bonus, while saving £2,000 will result in a £500 bonus. To calculate your bonus, you can use the simple formula [Amount you save] x 0.25 = your bonus amount.

When do you receive the LISA bonus?

Your bonus tends to be deposited into your account within 4-6 weeks of saving money in your LISA. If you contribute monthly, it will feel like a monthly bonus. However, if you add a lump sum of money, you'll receive the bonus for that amount in one go.

When can I take money out of a LISA?

It's important to remember that you can’t withdraw the bonus to spend on something else. If you withdraw money from your LISA for ineligible reasons, such as not using it to buy your first home or for retirement purposes at age 60, the government will impose a 25% penalty. You'll lose the 25% government bonus and around 6.25% of your own money. The penalty is in place to prevent others from taking advantage of a scheme designed to help first-time buyers and retirees.

What fees can a Lifetime ISA cover?

You might think it can be used to pay for everything, or maybe you think it’s just for your deposit, so here’s a quick summary to get you clued up: The homebuying costs you can use your LISA savings for:

  • The deposit
  • Any additional money you're putting into the cost of your home, for example, when the property is valued and comes back as worth less than the property price (it happens), and you have to make up the difference.

The homebuying costs you can't use your LISA savings for:

  • Surveys
  • Stamp duty
  • Solicitor/conveyancer/legal fees
  • Mortgage broker fees
  • Moving fees
  • Any other costs associated with buying or moving

Top tip: For the costs that your LISA can’t pay for, plan ahead and use a separate savings account to cover those costs.

Can you use multiple LISA bonuses on the same home?

Yes!!! Double the bonuse provided everyone who's looking to claim their bonus meets the eligibility criteria above and the house is valued under £450k.

Can I use a LISA if I'm buying with someone who already owns a home?

Another resounding yes! You can use your LISA even if someone you're buying with isn't a first time buyer.