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Lifetime ISAs: Your Questions Answered

Row of terrace houses

A Lifetime ISA (LISA) is a special type of individual savings account that lets you put away up to £4,000 every year. The money can then be used for buying your first home or for retirement.

The reason that a LISA stands out against other similar savings vehicles is the 25% bonus: the government will top up your account with 25% of the amount that you’ve put in. So if you max out the annual limit each year, you could be getting £1,000 of free money. That’s on top of whatever interest the account pays.

A LISA might seem like the savings account of choice for anyone saving to buy a home – and in most cases that’s probably true. The accounts do come with a range of rules and stipulations though, so it’s worth doing your research first.

What if I already have a Help to Buy ISA?

Help to Buy ISAs are no longer available, but you may already have one open. This doesn’t restrict you from opening a LISA, however you would only be able to use the bonus from one account for buying a home. This means that it’s not necessarily advisable to use both accounts when saving for a deposit.

How does a LISA affect my overall ISA limit?

The money that you save into a LISA counts towards your overall ISA limit – £20,000 for the current 2020/2021 tax year.

Piggy bank with glasses and calculator

This means that if you pay the full £4k into your LISA, you’d have £16,000 left of your allowance. The government bonus isn’t taken into account.

How quickly can I use the funds?

You need to have the account open for at least 12 months before you can use the money for a home purchase – otherwise you’ll lose the bonus and have to pay a withdrawal fee. That means a LISA won’t be right for you if you’re looking to move within the next 12 months.

What if I change my mind about buying a home?

One of the benefits of a LISA compared to the old Help to Buy ISA is the fact that the money isn’t exclusively available for buying a home. It can also be accessed after you turn 60, as a boost to your retirement fund. The money can also be withdrawn by those who have a terminal illness and are expected to have less than twelve months to live.

Elderly couple hugging

Otherwise, if you decide to withdraw the money early then you will be expected to pay a charge – currently 20% and expected to rise to 25% in the near future. A 20% fee equates to losing the full government bonus, while a 25% fee would mean that you also lose a small amount of the money that you paid in.

Are there restrictions on the kind of property I can buy?

The property has to be your first home, and you can’t own any other property (or have been involved in a purchase previously). There’s also a limit of £450,000 on the cost and an age limit between 18 – 39 years old. Finally, it needs to be a home for you to live in – not a buy to let property.

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