If you’re planning to retire or buy a home, you might want to consider opening a lifetime ISA. If you are unsure about the lifetime ISA rules, this needn’t be a problem. Read on to find out everything you need to know.
1. There is an age limit
In order to open a lifetime ISA (LISA) you must be 18 or over but under 40. You must make the first payment into your account before your 40th birthday.
2. There are Lifetime ISA rules about the savings limit
You can save up to £4,000 in a LISA every financial year until you reach the age of 50. The amount you save in a LISA counts towards your total annual ISA limit. For the tax year 2021/22, the total ISA limit is £20,000.
So, for example, if you save £4,000 in a LISA, you could save up to £16,000 in another ISA product.
Plot your path towards financial freedom with our Hero’s Journey tool!
MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.
This tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.
3. You will receive a government bonus
The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
So if you save the maximum LISA allowance of £4,000, the total amount deposited within the year will be £5,000.
4. You can choose from two different types
You can open a stocks and shares LISA, a cash LISA or a combination of the two. The combined amount you can deposit in the financial year will still be £4,000.
5. You can withdraw without penalty for any of three reasons
According to the Lifetime ISA rules, you can make withdrawals without penalty under the following circumstances:
- To buy your first home
- When you are aged 60 or over
- If you are terminally ill with less than 12 months to live
6. You pay a penalty for unauthorised withdrawals
If you make a withdrawal for any other reason, you will have to pay a 25% penalty on the amount withdrawn.
This is because the LISA is a scheme designed for buying a home or retirement. A withdrawal for any other reason is considered to be unauthorised, and as such the government reserves the right to charge a penalty.
So, if you have made a deposit of £1,000, the government will give you a bonus of £250. Assuming no growth, the total amount in your LISA will be £1,250.
If you choose to make an unauthorised withdrawal of the total amount, the government will take 25% of the total. This is 25% of £1,250, amounting to £312.50. So you will be charged more than the original government bonus of £250.
4 iron-clad rules for saving money on everything
Our Editor Sam Robson has been on a personal cost-cutting mission for years – and it’s time to share his wisdom.
Check out his choicest saving tips and tricks in this free report, “Sam’s 4 Iron-Clad Rules For Saving Money On Everything”.
Just enter your email below for instant access to your free copy.
7. There are Lifetime ISA rules when buying your first home
You can use your LISA to buy your first home as long as the following lifetime ISA rules are met:
- The property costs £450,000 or less
- The purchase is made with a mortgage
- You make the purchase at least 12 months after your first payment into your LISA
- You use a licensed conveyancer or solicitor to make the purchase on your behalf.
8. Your Lifetime ISA ends on your date of death
According to the lifetime ISA rules, if you die, there is no charge to withdraw the funds from your account.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.