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What is a Lifetime ISA and how does it work?

An overview of the key Lifetime ISA details, how the government bonus works, and how you can use the account towards a property purchase! 🏡

In this article, we'll cover:

What is a Lifetime ISA?

The Lifetime ISA (LISA) is a product designed by the government to help you to purchase your first home or save towards retirement. Any UK tax resident aged 18-39 can open a Lifetime ISA.

You can pay in up to £4,000 per year and you get a 25% government bonus on all savings. That means for every £4 you save, you get £1 for free, and, if you pay in the maximum £4,000 you’ll receive a £1,000 bonus. Over time, these bonuses could give you a real head start.

A 25% government penalty applies if you withdraw money from a Lifetime ISA for any reason other than buying your first home (up to £450,000) or for retirement after age 60 (except in cases of terminal illness). Your account also needs to be open for 12 months before you can withdraw penalty-free for a property purchase. LISAs are considered ‘open’ once you’ve made your first contribution.

With Moneybox you can choose between a Cash Lifetime ISA, which offers an interest rate of 4.25% AER (variable) for new customers, made up of a 2.80% AER variable interest rate and a 1.45% introductory bonus rate for your first year, or our Stocks & Shares Lifetime ISA, which allows you to invest your savings in the stock market. Remember, as with all investing, the value of your investments can go up and down, and you may get back less than you invest.

How does the bonus work?

LISA bonuses are paid out by HMRC at the end of each month, and are based on your total collections in the previous month.

HMRC doesn't pay out bonuses on a set date each month, but this is typically in the final week of the month, usually between the 24th and the end of the month.

LISA bonus ‘windows’ run from the 6th of the month to the 5th of the following month (e.g. the 6th of January to the 5th of February would be the January bonus window). If you were to make a contribution to your LISA during this period, you’d receive the bonus at the end of February 👍

If you have a pending bonus, you can see when this is due to be paid in Discover > Tools > Lifetime ISA Bonus.

Using a LISA for your first home

To make a qualifying withdrawal from your LISA for a first home purchase, you must meet the following criteria:

  • The property costs ÂŁ450,000 or less.

  • You buy the property at least 12 months after you open a Lifetime ISA. Your LISA is considered open from the date of your first contribution into the account.

  • You use a conveyancer or solicitor to act for you in the purchase. Moneybox will pay the funds directly to the conveyancer or solicitor.

  • You’re buying with a mortgage (using a buy to let mortgage is not permitted).

  • You have never owned a property before. This includes properties in the UK or in any other country. If you owned a property, or a share of one, through inheritance this counts as owning a property.

We’ve set out the main Lifetime ISA details you need to know in our infographic below 👇

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