A Lifetime ISA (LISA) could help you reach long-term financial goals from buying a house to saving for retirement.
Lifetime ISAs allow you to save up to £4,000 each tax year, with the government adding a 25% bonus on top. This means you can receive a bonus of £1,000 every tax year. However, there are several restrictions and considerations to keep in mind before opening one.
How Does a Lifetime ISA Work?
The Lifetime ISA (LISA) was introduced in 2017 to help first-time buyers get on the property ladder or save for retirement.
Like all ISAs, the Lifetime ISA offers a tax-efficient way to save money, as any interest, dividends, and profits you earn are tax-free. Additionally, with a LISA, you receive a 25% government bonus worth up to £1,000 each tax year based on your contributions.
Uses of a Lifetime ISA
LISAs can be used for:
- The exchange deposit on your first home worth no more than £450,000.
- Funding for your retirement.
Withdrawals are allowed only for these purposes; otherwise, you will lose the bonus and incur a 5% government withdrawal charge.
Types of Lifetime ISAs
You can open either a stocks and shares LISA or a cash LISA. The choice depends on your savings goal and when you will need the money. More details on this will be provided later in the article.
Contribution Limits
Unlike other ISAs, you can contribute up to £4,000 each tax year to a LISA. This leaves £16,000 that can be allocated to other types of ISAs.