Lifetime ISA explained: the 25% bonus, the £450,000 cap and the penalty
Save £4,000 a year and the government adds £1,000. Who can open one, how the first-home rules work, and when the 25% penalty bites
The Lifetime ISA (LISA) is the only mainstream savings account where the government tops up your money by 25%. Pay in £4,000 in a tax year and you get £1,000 added. It is designed for a first home or for retirement, and the rules around it are strict. This guide sets out who qualifies, how the home purchase works, and the withdrawal penalty that catches people out.
Who can open one
You must be aged 18 to 39 when you open the account and a UK resident. Once open, you can keep paying in until the day before your 50th birthday. The bonus is paid monthly by HMRC, so it starts earning interest or growth straight away.
The £4,000 counts towards your £20,000 overall ISA allowance. So if you put the full £4,000 into a LISA in 2026/27, you have £16,000 left for other ISAs.
Buying a first home
You can use the LISA, with the bonus, towards a first home if:
- You have never owned a property anywhere in the world, including inherited property or a share.
- The home costs £450,000 or less.
- You buy with a mortgage, not cash.
- The account has been open at least 12 months from the date of your first payment.
- You will live in it.
The money goes from the LISA provider to your solicitor, not to you. If two first-time buyers buy together, both can use their own LISA on the same property.
The 12-month rule is why people open a LISA early with a small sum, even £1, to start the clock.
The £450,000 cap
The cap has not moved since the LISA launched in 2017. In parts of London and the South East a first home can cost more. If your purchase price is over £450,000 you cannot use the LISA for it without paying the penalty. Check local prices before relying on the account for a home.
The 25% withdrawal penalty
Take money out for anything other than a qualifying first home, retirement after 60, or terminal illness and you pay a 25% charge on the amount withdrawn. That is more than just losing the bonus.
Example: you pay in £4,000 and get a £1,000 bonus, giving £5,000. You withdraw it all for another purpose. The charge is 25% of £5,000, which is £1,250. You get £3,750 back, £250 less than you put in.
Only use a LISA for money you are confident will go towards a first home or stay untouched until 60.
Cash or stocks and shares
Information only, not personal advice.
| Cash LISA | Stocks and shares LISA | |
|---|---|---|
| Return | Interest rate, guaranteed | Depends on investments, can fall |
| Suits | Home purchase within around 5 years | Retirement, or a home well over 5 years away |
| Protection | FSCS up to £120,000 per licence | FSCS investment protection, but not against market falls |
A cash LISA makes sense when the purchase is close and you cannot afford a loss. Check a comparison site for current cash LISA rates. Fewer providers offer them than ordinary cash ISAs.
LISA for retirement
After age 60 you can withdraw everything tax-free with no penalty. This makes the LISA a useful extra to a workplace pension for some people, especially the self-employed who have no employer contribution. It is not a replacement for a pension: there is no employer contribution, and the £4,000 limit is low. Pensions also get tax relief at your marginal rate, which beats 25% for higher-rate taxpayers.
Watch out for
- Missing the 12-month rule. Open the account well before you plan to buy.
- Paying in more than £4,000. Providers will reject the excess, but track it if you have more than one ISA.
- Property over £450,000. There is no partial relief.
- Withdrawing in an emergency. The penalty applies. Keep separate emergency savings.
- Changing plans. If you inherit a home, buy abroad or move overseas, the first-home route closes and the penalty applies to early withdrawals.
Official guidance is at gov.uk/lifetime-isa.