Lifetime ISA: How It Works, the 25% Bonus and the Rules

Lifetime ISA: how it works

A Lifetime ISA (LISA) is a savings account that helps you buy your first home or save for later life. You can pay in up to £4,000 each year, and the government adds a 25% bonus — up to £1,000 a year. That means saving the full £4,000 earns you a free £1,000 top-up.

Who can open a Lifetime ISA?

You must be 18 or over but under 40 to open a Lifetime ISA, and you must make your first payment into it before you turn 40. You must also be resident in the UK, or a member of the armed forces or a Crown servant (or their spouse or civil partner) if you do not live in the UK.

You can hold cash or stocks and shares in a Lifetime ISA, or a combination of both. When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus, but your account stays open and your savings still earn interest or investment returns.

The 25% bonus

The government adds 25% to your savings, up to a maximum of £1,000 per year. Save £1,000 and you get a £250 bonus; save the full £4,000 and you get £1,000. The bonus is claimed by your provider from HMRC and is usually paid monthly, a few weeks after you pay in.

The £4,000 limit counts towards your annual ISA allowance of £20,000 for the 2026/27 tax year. So if you pay the full £4,000 into a Lifetime ISA, you have £16,000 of allowance left for your other ISAs that year.

When can you take the money out?

You can withdraw money from your Lifetime ISA without charge if you are:

• Buying your first home — the property must cost £450,000 or less, be bought with a mortgage, and the purchase must be at least 12 months after your first payment into the account.
• Aged 60 or over.
• Terminally ill, with less than 12 months to live.

The 25% withdrawal charge

If you withdraw cash or assets for any other reason, you pay a 25% withdrawal charge on the amount you take out. Because the charge applies to the total — including the government bonus — you can get back less than you paid in.

GOV.UK’s own example shows how: pay in £800, receive a £200 bonus, giving a £1,000 pot. Withdraw it early and the 25% charge is £250, leaving you with £750 — £50 less than the £800 you put in.

This is the main risk of a Lifetime ISA. It is a poor choice as a rainy-day account, because you cannot access the money freely. Only open one if you are confident you will use it for a first home under £450,000 or leave it untouched until age 60.

Lifetime ISA or pension?

For retirement saving, a workplace pension is usually the better option, especially if your employer matches your contributions. The Lifetime ISA’s 25% bonus is attractive, but pension contributions get tax relief and, with an employer match, can be worth more. A Lifetime ISA makes most sense if you are saving specifically for a first home.

Changes on the horizon

The government consulted in June 2026 on replacing the Lifetime ISA with a new First Time Buyer ISA. No launch date has been set, and existing Lifetime ISAs continue as normal — they keep earning the bonus and can be used alongside the new product for the same purchase. Do not close a Lifetime ISA because of the announcement.

Frequently asked questions

How much can I put in a Lifetime ISA?
Up to £4,000 per tax year, until you turn 50. The government adds a 25% bonus, up to £1,000 a year.

Can I use a Lifetime ISA for a house over £450,000?
No. The property must cost £450,000 or less, and the cap has not changed since the product launched in April 2017.

What happens if I withdraw early?
You pay a 25% charge on the amount withdrawn, which can leave you with less than you paid in.

Can I have a Lifetime ISA and a Cash ISA?
Yes. The £4,000 you pay into a Lifetime ISA counts towards your £20,000 total ISA allowance, leaving £16,000 for other ISAs.