Lifetime ISA: The 25% Bonus for First Homes and Retirement
A Lifetime ISA (LISA) is an ISA for people aged 18 to 39 at opening, into which the government pays a 25% bonus on contributions of up to £4,000 a year — a maximum of £1,000 free money annually — provided the funds are used for a first home costing up to £450,000 or left until age 60.
The bonus is paid monthly by HMRC on whatever you contribute, so £4,000 in becomes £5,000 the same year before any investment growth. You can keep contributing, and keep receiving the bonus, until the day before your 50th birthday, which means someone who opens at 18 and maxes it every year collects up to £32,000 in bonuses. The £4,000 counts toward the overall £20,000 ISA allowance.
Using it for a first home works only if the property costs £450,000 or less, is bought with a mortgage, is your main residence, and the account has been open at least 12 months. A couple buying together can each use their own LISA on the same property. The £450,000 cap has not moved since 2017, which rules out many London flats — check the price before relying on the bonus.
Take the money out for any other reason before 60 and a 25% withdrawal charge applies to the whole amount withdrawn — bonus, contributions and growth. Because 25% of the grossed-up sum is more than the 25% bonus you received (£5,000 less 25% is £3,750, not £4,000), an early withdrawal loses you 6.25% of your own money. The charge is waived only for terminal illness.
For retirement, a LISA competes with a pension. The pension wins for higher-rate taxpayers (40% relief beats a 25% bonus) and for anyone with an employer match, and pensions sit outside the estate for inheritance tax until April 2027. The LISA wins for basic-rate taxpayers who have already banked the employer match, because withdrawals after 60 are entirely tax-free while 75% of a pension is taxed as income.
Cash or stocks and shares? For a home purchase within five years, cash avoids a badly timed market fall; for a retirement LISA, decades of growth argue for equities. The most common mistake is opening one at 40 or later, which is not allowed, or treating it as an emergency fund, which the withdrawal charge punishes.
Richify projects your LISA to the purchase date or to 60 with the bonus applied monthly, and shows whether the same £4,000 would do more inside your workplace pension at your marginal rate.
