The Lifetime ISA explained: the 25% government top-up most under-40s ignore
You can get £1,000 of free government money a year towards a first home or retirement. Here's exactly how the LISA works, the catches, and who it's worth it for.
The Lifetime ISA (LISA) has been available since 2017 and remains, mathematically, the most generous savings vehicle the UK government offers most adults. Yet uptake is low — partly because the rules are slightly fiddly, partly because the marketing has always been quiet. Here's the honest version.
How it works
- Open one between ages 18 and 39.
- Pay in up to £4,000 per tax year.
- The government adds 25% on top — up to £1,000 of free money per year.
- You can keep paying in (and earning the bonus) until you turn 50.
- Withdraw the lot, tax-free, from age 60 — or use it for a first home purchase up to £450,000 at any point after the account has been open 12 months.
In other words: pay in £4,000, the government adds £1,000, and any growth or interest sits on top. Across 22 years of maximum contributions (age 18 to 39), the bonus alone is £22,000.
Cash LISA or stocks-and-shares LISA?
- Cash LISA — best rates currently around 4.25% AER. Suits first-home savers buying within 5 years.
- Stocks & shares LISA — suits retirement saving (20+ year horizon). AJ Bell, Hargreaves Lansdown, Moneybox and Tembo all offer one.
If you're saving for both purposes, many people use the LISA strictly for the house deposit and pension contributions for retirement.
The catches you need to know
- The £450,000 cap is a hard cap. If your first home costs £455,000, you cannot use the LISA towards it — and withdrawing for any other purpose triggers a 25% penalty (which more than wipes out the bonus).
- Help-to-Buy ISA holders: you can transfer in, but it counts towards the £4,000 annual limit.
- The 25% withdrawal penalty applies to any non-house, non-age-60 withdrawal. Worth knowing before you put money in you might need.
- Pension vs LISA for retirement — for higher-rate taxpayers, a workplace pension is usually mathematically better due to 40% relief. Basic-rate taxpayers without strong workplace contributions often do better with a LISA.
Who should open one tomorrow
- Anyone aged 18–39 saving for their first home under £450k.
- Self-employed basic-rate taxpayers without a workplace pension.
- Anyone aged 38–39 who isn't sure — just open and pay in £1 to lock in eligibility. You can decide what to do with it later, but the door closes at 40.
The Lifetime ISA is the rare government scheme that genuinely gives money away. The biggest cost is not opening one in time.
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