What is a Lifetime ISA?
The Lifetime ISA - or LISA - was introduced in 2017 to help people under 40 save to buy their first home or save for later life.
To open a LISA, you have to be between 18-39 and have opened the account before your 40th birthday. You must also be a UK resident, or be in the diplomatic service, or the spouse or civil partner of someone in the diplomatic service.
You can currently put in up to £4,000 each year until you turn 50. The government will also add a 25% bonus to whatever you put into the account, up to £1,000 per year. The current Lifetime ISA limit of £4,000 contributes to your annual ISA limit. You can also hold cash or stocks and shares in your Lifetime ISA, or a combination of both.
When you turn 50, you stop paying into the Lifetime ISA and stop earning the government bonus. But you can also keep the Lifetime ISA open, carrying on earning interest and any investment returns.
You're allowed to take money out of your Lifetime ISA if you're:
- buying your first home - you have to live in the property, so you can't buy to let
- aged 60 or over
- terminally ill, and only have 12 months or less to live
If you take out money for any other reason, you'll have to pay a 25% charge for the amount you want to withdraw.
This charge recovers the government bonus and applies an extra charge to the original savings. So if you're thinking about using a Lifetime ISA as a short-term savings option, you could get back less than you paid in.
Withdrawal charge example
If you paid £800 into your Lifetime ISA over a year, the government bonus would be £200 to give you a total of £1,000. But if you withdrew the full £1,000 from the Lifetime ISA, there would be a withdrawal charge (25%) of £250. So you'd end up only getting £750.
The withdrawal charge will still apply even if you haven't received your first bonus.
Buying your first home
If you're planning to buy your first home, you can use a Lifetime ISA to save for it. But there are some conditions for this, and all of these must apply to the purchase:
- the property has to cost £450,000 or less
- you must buy the property after the Lifetime ISA has been open for 12 months at least
- you must use a conveyancer or solicitor to act for you in the purchase - the Lifetime ISA provider will pay the funds directly to them
- you have to buy with a mortgage
- you can't already own a property or have a legal interest in a property (such as being a beneficiary of a trust that includes property)
If you're buying with someone else and they also have a Lifetime ISA, they can use theirs too - as long as you both meet all the conditions.
If you have a Help to Buy ISA you can also have a Lifetime ISA. But you can only use the government bonus from one ISA to buy your first home. You can also transfer money between the two, but transferring money from a Lifetime ISA to a Help to Buy ISA will incur the 25% withdrawal charge.
Saving for later life
From when you turn 60 onwards, you can take out your Lifetime ISA savings in full, including your bonuses. But if you withdraw or transfer money from your Lifetime ISA to another ISA before you turn 60, you'll have to pay the 25% withdrawal fee.
Your Lifetime ISA ends when you die. At that point, there'll be no charge to withdraw funds or assets from the account. It'll also be made available to your estate.
Types of complaints we see
Most of the complaints we get from consumers relate to:
- administration - including delays in opening Lifetime ISAs and transferring money in and out of them
- misunderstandings of the rules - such as not realising that a Lifetime ISA has to be open for 12 months to be used for buying a property, or there being a maximum limit for a property's cost.
How to complain
Talk to your provider first. They need to have time in order to put things right. The business has up to eight weeks to give you their final decision. If you're unhappy with their decision, or if they don't respond, you can then come to us with your complaint.
Find out more about how to complain.
Putting things right
If we decide to uphold your complaint, we'll get the business to put things right. This might include paying compensation or repaying any charges made before the issue occurred.
Customer loses bonus from Lifetime ISA when they cashed it in
Unexpected withdrawal charge from transferring money to different ISA types
Consumer complains that online banking wasn't clear enough for opening a Lifetime ISA
Consumer complains on missed bonuses because of delay to opening account