Is a Lifetime ISA worth it?

For a first home costing £450,000 or less, or for money you are content to leave until 60, the 25% bonus is difficult to beat. For anything else the 25% withdrawal charge leaves you with less than you paid in.

What you get

A 25% bonus
On up to £4,000 a year, so up to £1,000 a year added by the government.
Tax free growth
Like any ISA, no income tax or capital gains tax on what it earns.
Cash or investments
Both versions exist. For a house purchase within a few years, cash usually suits; for retirement money decades away, investments usually do.
Age limits
Open it between 18 and 39. Pay in until you turn 50. The account stays open and keeps growing after that.

The three charge-free exits

Any other withdrawal carries a charge of 25% of the amount taken. On £1,250 made up of £1,000 saved and a £250 bonus, the charge is £312.50 and you receive £937.50.

The £450,000 cap has not moved since the Lifetime ISA was introduced.

Related questions

What if house prices push me over £450,000?

The cap has not moved since the Lifetime ISA was introduced. If the property you buy costs more, the withdrawal is not charge-free, so you would lose the bonus and more besides. It is the main risk for buyers in expensive areas.

Can I use it with Help to Buy or a shared ownership purchase?

Shared ownership purchases can qualify. The rules are specific, and your conveyancer handles the withdrawal, so check the position early.

Should I use it in place of a pension?

For most employed people, no, at least not before taking any employer pension match on offer. A pension contribution attracts tax relief at your marginal rate and an employer may add to it, where a Lifetime ISA adds a flat 25%.

What if I never buy a house?

The money stays invested and becomes available at 60 without charge. The cost is that it was locked up in the meantime.

Where this fits

It depends on what the money is for and when you will need it. Those are the two questions worth settling before you open one.

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The advisers for this subject

Sunny Bharj

Sunny Bharj

Independent Financial Adviser

Tony Springer

Tony Springer

Independent Financial Adviser

Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.

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