Lifetime Individual Savings Accounts (LISAs)

The best of all savings wrappers?

The facts (2021)

The same general idea as an ISA, but with different rules. Read ISAs first. Then:

  • You must be aged 18-40 to open a LISA.
  • The maximum annual contribution is £4,000, but this counts towards your annual ISA limit of £20,000.
  • The government will donate 25% each year of whatever you have contributed.
  • You can contribute to age 50
  • You can withdraw without penalty at age 60
  • You can also withdraw without penalty if
    • You are terminally ill (less than 12 months to live)
    • You are buying your first home (subject to certain conditions)
  • In all other circumstances you will pay a penalty of 25% of the amount withdrawn

HMRC summary here

Our view

If you are saving at all it is hard to find a case against a LISA, provided you qualify. It’s true that if you get caught with a withdrawal penalty you’ll turn a 25% gain from government into a 6% loss. But there are certainly opportunities for the creative use of the Bank of Mum & Dad.

Note also the same caveats apply as for an ISA.

This particularly applies to charges. E.g. if charges are 1.1% per annum for the 32-year donation period that is enough to wipe out the whole effect of the government contribution. I.e. the charges have taken 25% of the fund. It is the magic of compound interest. So use a stockbroker or platform that charges a flat fee and avoid expensive funds.