Lifetime Individual Savings Accounts (LISAs)

The best of all savings wrappers?

LISA stands for 'Lifetime ISA'

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 for less than £450,000 (subject to a few other 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  • In all other circumstances you will pay a penalty of 25% of the amount withdrawn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, unless you have a good workplace pension. It’s true that if you get caught with a withdrawal penalty you’ll turn a 25% gain from government into a small loss (about 6%). And you may be able to avoid withdrawal by the creative use of the Bank of Mum & Dad (they lend you the money you need, you pay them back at maturity).

One warning. If you buy a house for just £1 over the £450,000 limit you will pay the 25% penalty on the full withdrawal amount. If it takes longer than you expected to reach your goal and/or house prices rise quicker than you expect your £300,000 dream home could quickly become unaffordable.

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.