If you are saving towards your first home then a Lifetime ISA (also known as a LISA) is the most efficient way to achieve this. This is largely due to the 25% bonus from the government which could increase your savings by up to £1,000 a year. You won’t find that kind of growth anywhere else. Read my full article to discover which providers can offer you the best service when it comes to Lifetime ISAs.
Top lifetime ISA providers in November 2023
Discover my top lifetime ISA providers below, be sure to read about each provider in detail before making a decision.
- Invest from as little as £25 per month into a LISA
- No account set up fees, inactivity fees, holding fees or withdrawal fees.
AJ Bell offers a low-cost Lifetime ISA that will set investors back from just £1.50 a deal. Their account is easy to manage from their innovative mobile app and account holders can invest from as little as £25 a month into the LISA account. Whether you are an experienced investor or a complete novice, AJ Bell is able to cater to all levels of experience with the option to select all your investment options and funds yourself or letting the team of specialists do the work for you.
Important: AJ Bell doesn’t offer advice
Capital at risk.
- Fees from just 0.45% on a Stocks and Shares Lifetime ISA from HL
- Easy to use trading platforms
- Educational tools are well structured and high-quality
Hargreaves Lansdown charges just 0.45% for DIY investors but there are other charges associated with dealing in Exchange Traded Funds, investment trusts, and shares. One of the advantages of the Hargreaves Lansdown Lifetime ISA is that it also allows you to hold your ISA as cash, effectively making it a hybrid between a S&S Lifetime ISA and a Cash Lifetime ISA. It is worth noting that Hargreaves Lansdown does not currently offer any interest when you hold cash in their LISA, although this may change in the future. You can start a Lifetime ISA with as little as £100 or by setting up a £25 monthly direct debit.
Capital at risk.
- Create an ISA and start with just £1
- Save or invest a deposit to buy your first home
- Pay in up to £4,000 each tax year and get a 25% government bonus on all savings
Moneybox operates a flat fee system of just £1 per month (free for the first three months) for their S&S Lifetime ISA. You will also be charged a monthly platform fee of 0.45% as well as annual funds provider costs of between 0.12% and 0.30%.
It is worth noting that Moneybox also offers the best interest on their Cash Lifetime ISA enabling you to earn interest should you wish to take your money out of investments and hold it as cash. With the Moneybox app, you can link to your bank account and use their rounding up service to help grow your pot and anyone can start investing with as little as £1. Funds invest in shares, bonds, and other financial instruments. Moneybox facilitates transfers as a lump sum, or monthly direct debit.
Capital at risk.
How do Lifetime ISAs work?
Lifetime ISAs are savings accounts that allow you to deposit a maximum of £4,000 each tax year. What makes Lifetime ISAs so efficient at saving is that the UK government pays a 25% bonus into your lifetime ISA each month, based on the amount you have contributed. The maximum bonus you can receive from the government each year is £1,000. In addition to this, account holders will not pay tax on any gains made within the Lifetime ISA.
Therefore, if you were to pay in the maximum amount of £4,000 each year, you would receive an additional £1,000 from the government, making that year’s total ISA savings £5,000 before any interest or income is earned on the account.
The government will continue to pay this bonus into the best Lifetime ISA you can find until you reach the age of 50 which means that if you were to make the maximum annual contribution between the ages of 18 and 50, you would receive a total of £32,000 in government bonuses.
Lifetime ISAs can only be opened by people between the ages of 18 to 39 and the savings earned within the ISA can only be used towards the purchase of your first home or accessed after you have turned 60 years of age.
It is worth knowing that any contributions you make to a Lifetime ISA come out of your ISA allowance of £20,000 for the tax year of 2021/22. Anything over and above the maximum Lifetime ISA contribution of £4,000 can still be paid into a Cash ISA or a Stocks and Shares ISA in order to utilise the remaining £16,000 of your tax-free allowance.
First-time buyers saving for their home deposit can also make use of the tax-free benefits that can be found within a Lifetime ISA (LISA).
There are two main types of Lifetime ISAs, Cash Lifetime ISAs and Stocks and Shares Lifetime ISAs. Both types attract the 25% government bonus and you don’t pay income tax on any interest or investment growth within the ISA. We will take a look at both options to help you ascertain which is the most appropriate for your needs.
Lifetime Cash ISAs
A Cash Lifetime ISA has all the benefits listed above, however, your ISA savings will also earn interest within the account and any income on interest earned will be paid monthly and is completely tax-free. The most notable advantage of the Cash Lifetime ISA is that it is considered very low risk as your money is not invested in the stock market. In addition to this, a Cash Lifetime ISA does not attract any fees. The disadvantage is that with the current rates of interest being so low across the board, any income you earn outside of the government 25% bonus will be very small. Below we have listed some of the Cash Lifetime ISA providers with comparison tables to illustrate the best rates of interest currently available.
Best Cash Lifetime ISA
|Beehive Money (Nottingham Building Society)||0.80%|
|Newcastle Building Society||0.5%|
*Rates of interest correct at time of publication. Please check individual providers for the latest rates of interest.
The Moneybox Cash Lifetime ISA continues to offer the best rate with the added benefit of also offering a Stocks and Shares Lifetime ISA.
For savers who prefer the more traditional approach of a Building Society, Beehive Money offer the second-best interest rate and in addition to this, new account holders transferring existing Lifetime ISAs worth £10,000 will receive a £50 bonus from the provider. You can open the Lifetime ISA online with as little as £10.
Stocks and Shares Lifetime ISAs will often afford savers a better rate of return than Cash ISAs, largely because your money will be invested in funds, shares, bonds, and other assets . However, this is not without a degree of risk and it is important to know that the value of your investment can go down as well as up.
It is usually free to open a S&S LISA account, however, there are usually costs associated with investing your money. These fees vary depending on the Stocks and Shares Lifetime ISA providers you choose and the value of your pot. There are also costs associated with any funds or shares you are invested in. However, despite these costs, investing your Lifetime ISA can generate substantial investment growth depending on the rise and fall of the stock market. Having a fully diversified portfolio can help to mitigate your risk and it is always worth remembering that when investing, you should be prepared to leave your money invested for a minimum of five years before you withdraw money. For savers with limited or no investing experience or knowledge, there are a number of options whereby an investment team can make all the decisions on your behalf based on your risk assessment.
Stocks and Shares Lifetime ISA Fee Comparison
|Provider||Management Fee*||Fund Costs*||Other Fees*||Minimum Investment|
|Nutmeg||0.75% on the first £100,000, 35% on anything beyond £100,000||0.20%||0.07% market spread||£100|
|AJ Bell||0.25% max £3.50 per month||0.31% – 0.65%||£1.50 buying and selling funds.
£9.95 buying and selling shares
|£500 lump sum or £25 per month|
|Hargreaves Lansdown||0.45% on the first £250,000||0.45% capped at £45 per year||£11.95 per deal||Minimum deposit £100 or £25 per month|
|Moneybox||£1 per month (free for the first 3 mths) + 0.45%||0.58%||–||£1|
*Fees, costs and minimum deposit correct at time of publication. Please check individual providers for the latest fees.
Early withdrawal penalties
Early withdrawal of your Lifetime ISA cash will result in a 25% penalty. In other words, should you need to access your tax-free savings for any reason other than for the purchase of your first home or retirement after the age of 60, then you will sacrifice 25% of the value of your savings, working out as more than any government bonuses you have accrued in the time that you have had the Lifetime ISA open.
As an example, should you deposit £1,000 into your Lifetime ISA and trigger the 25% bonus in the following month, you would then have a total of £1,250. However, should you withdraw your entire Lifetime ISA the following month, you would trigger the 25% penalty on the full amount of £1,250 which would mean you would be charged £312.50 and would only get back £937.50.
Eligibility criteria for using your LISA to buy a home
Under the terms of the Lifetime ISA scheme, in order to use your LISA savings to buy a property, you must meet the following criteria:
- Be a first-time buyer.
- Opened your own LISA over 12 months ago.
- Buy a home in the UK.
- Buy a home to the value of £450,000 or less.
- Have this as your only property.
- Intend to reside in the property you have purchased (no buy to let).
- Used a mortgage to purchase the property.
Lifetime ISAs safety
With Cash LISAs, the only remote danger is that the provider you open an account with goes bust. However, the Financial Compensation Scheme guarantees your money up to the value of £85,000. There is however a considerably greater risk with a Stocks and Shares LISA, as Investment Lifetime ISAs involve investing your money in the stock market, and therefore the value of your investments can go down as well as up depending on the funds you are invested with. However, there are steps you can take to reduce this risk and experts will always recommend that you be prepared to leave your money invested for a minimum of five years in order to ride out any volatility in the stock market.
Help to Buy ISA
The Help to Buy ISA is a government initiative designed to help individuals save for and buy their first home. Savings within the Help to Buy ISA are tax-free and the government will top up your contributions by 25% up to the contribution limit of £12,000. Anyone hoping to be a first-time buyer could save into a Help to Buy ISA from the age of 16. Help to Buy ISAs are not open to new applicants as this initiative has been replaced by the Lifetime ISA. Account-holders with existing Help to Buy ISAs can continue to save into their account and receive the government bonus paid tax free into their account.
Lifetime ISA vs Help to Buy ISA
The Lifetime ISA was put in place in 2017 to replace the Help to Buy ISA and whilst both products attract the very generous government bonus of 25% of your total contributions, there are some key differences which we will explore further.
The Help to Buy ISA was available to everyone aged over the age of 16, conversely, you have to be 18 in order to be eligible for the Lifetime ISA. There is also a big difference in the amount you can save in each product with the Help to Buy ISA offering allowances of £2,400 per tax year and the Lifetime ISA offering allowances of £4,000 per tax year.
The other major difference is the way in which you can deposit into each of these accounts, with the Help to Buy ISA demanding regular monthly payments and the LISA allowing savers to deposit lump sums as and when appropriate. However, perhaps the most important difference between the two accounts is the potential value of the bonus in each. Whilst the Help to Buy ISA can attract a total bonus of £3,000, the LISA is a lot more generous with a total possible bonus of £32,000 free cash. The LISA also gives savers the opportunity to grow their pot by investing both their deposited cash and the bonus money in a Stocks Shares LISA which isn’t possible with the Help to Buy ISA
The other key difference is the LISA can also be used to help save for your retirement fund. The Help to Buy ISA was only for the purchase of your first home and people saving for retirement had to find alternative means.
Lifetime ISA vs Pension
Whether you should open a Lifetime ISA or a Pension very much depends on whether you are currently receiving pension contributions from your employer. If you are not receiving employer contributions then the Lifetime ISA is likely to be the best option to save for your retirement.
However, it’s important to know that you cannot access your LISA until you turn 60, whereas a pension can be accessed when you turn 55. Also, higher rate taxpayers will qualify for pension tax relief at 40% so a traditional pension is still the best option in this instance.
The other thing to consider is the amount you intend to contribute. The lifetime limit for a pension is £1.073m whereas the lifetime limit for a LISA with the bonus is only £128,000.
Should you wish to save more than the limit on a LISA there is nothing to stop you from having both a LISA and a pension simultaneously.
Opening a Lifetime ISA for a child
Many parents and grandparents are attracted by the government bonus of up to £32,000 and the fact that money in a LISA is locked away until the child spends it on something sensible like a house, or indeed their retirement.
However, a LISA can only be opened by the person named on the account, therefore, once your child turns 18, they would need to open their own account. Once the account has been opened, anyone can then pay into it, so this is where parents and grandparents can contribute towards the child’s Lifetime ISA savings. There are no tax implications for gifting money in this way, however, the only stipulation is that should you die within seven years of gifting the money, this could be added to your estate and made subject to inheritance tax.
Of course £4,000 a year is a lot to be saving from your teens onwards and many parents are keen to start saving for their children earlier than 18. In this instance, we would recommend opening a Junior ISA for your child and saving into that until the child turns 18, at which point the money saved in the Junior ISA can be transferred to a LISA at a rate that remains within the £4,000 annual ISA allowance per tax year. Any additional funds can be stored in a Cash ISA or a Stocks Shares ISA once the Junior ISA has been closed.
It is also worth considering whether the child in question is making full use of their employer pension contributions should they already be in employment.
LISA vs Innovative Finance ISA
An Innovative Finance ISA is a vehicle through which you can use peer-to-peer lending in order to secure better returns on your cash. Peer to peer lending, whilst often lucrative, can be a very risky option as borrowers can default on loans and investments are not protected by the Financial Services Compensation Scheme.
This type of Innovative Finance ISA does not attract the generous government bonus so we would still recommend the LISA over this product.
Lifetime ISA rules after the age of 50
When you hit 50 you will no longer be able to pay money into your LISA or earn the 25% bonus money from the Government. However, if you have a Cash Lifetime ISA you can continue to earn the interest offered by your LISA providers. If you have a Stocks Shares LISA, then you can also continue to earn returns on your investments. You cannot access your LISA until you have turned 60 or are buying your first home.
Can you lose money in a Lifetime ISA?
The amount of risk associated with a Lifetime ISA is very much dependent on whether you open a Cash Lifetime ISA or an investment LISA. A Cash LISA works in much the same way as an individual normal savings account and is therefore considered very low risk. Conversely, an investment LISA carries the same element of risk of any investment and the value of your investments can go down as well as up. With an investment LISA, it is entirely possible to get back less than you put in, although there are ways to mitigate your risk by creating a truly diverse portfolio and investing in Exchange Traded Funds.
Using two Lifetime ISAs to buy a house
In the event that you wish to buy a property with another person who also has a LISA, you can use the savings in both accounts for your house purchase on the provision that both of you meet the eligibility criteria. If one of you meets the criteria, but the other party does not, you will be in a position where you can only use one LISA to buy the property.
LISA rules for overseas residents
All ISA accounts are only open to UK residents who want to save to buy their first home or as retirement savings. Should you already have a LISA and then move abroad, you will be unable to deposit any further money into your ISA after the tax year that you move. It is your responsibility to inform your Lifetime ISA providers that you have moved abroad.
What happens to a Lifetime ISA if you die?
In the event of your death or terminal illness, your LISA, and any bonus money contained within it, will form part of your estate and be passed down to your beneficiaries who would be able to withdraw cash without any penalty.
Your LISA will continue to retain its tax benefits until the time that the administration of your estate is completed or the LISA is closed by your beneficiary, at which time the value of your LISA may be subject to Inheritance Tax.
Is a Lifetime ISA right for you?
If you are between the ages of 18 and 40 and have never owned your own home, then there are few ways of growing your wealth quicker than in a Lifetime ISA. We would also recommend this product to anyone who is saving for their retirement. With a total potential bonus earning of £32,000 this is by far the most lucrative account available.
Early withdrawal penalty
There is a 25% penalty on the amount you withdraw, should you choose to withdraw your LISA before you purchase your first home, or before you reach the age of 60.
Paying your Lifetime ISA allowance in as a lump sum
Should you wish to pay in your total LISA allowance as a lump sum rather than by direct debit then you are free to do so. You must ensure that the lump sum is still within the LISA allowance of £4,000 for that tax year.
Putting more than £4,000 into a Lifetime ISA
If you were to exceed the £4,000 in your LISA in any one tax year, the entire deposit will be returned to you. It is also worth remembering that the £4,000 a year Lifetime ISA limit is included in your overall ISA limit of £20,000 for the 2020/21 tax year. Therefore, if you were to use your LISA allowance and pay £4,000 into your LISA, then you would only have £16,000 of ISA allowance remaining.
Owning multiple Lifetime ISAs
Lifetime ISA rules permit anyone between the ages of 18 and 40 to open multiple LISAs, however, you are only permitted to deposit in one of those LISAs in any one year.
Payment of bonus money into a Lifetime ISA
The 25% bonus on your Lifetime ISA is paid monthly as long as you have contributed that month and takes between four and nine weeks to arrive.
Lifetime ISA FAQs
Can you still open a Lifetime ISA?
Can you lose money with Moneybox?
The Moneybox Cash Lifetime ISA operates just like a regular savings account, except with the government Lifetime ISA bonus and the tax benefits. Therefore your LISA money is no more at risk than it would be in a high street bank. Moneybox is also covered by the FSCS up to the limit of £85,000 so, in the unlikely event that the company were to go bust, your money would be protected up to that amount.
However, the Moneybox S&S Lifetime ISA comes with the same level of risk as any investment, and the value of your investments can go down as well as up. It is important to know that the FSCS does not cover a decline in the value of your investments.