The Lifetime ISA (LISA) offers a 25% government bonus on savings up to £4,000/year — that is up to £1,000 free money annually. It can be used towards your first home or retirement. But there are important restrictions, and early withdrawal comes with a penalty that means you get back less than you put in.
Eligibility
- You must be aged 18–39 to open a LISA
- You can continue contributing until age 50
- UK resident (or Crown servant)
- You can have a Cash LISA or Stocks & Shares LISA (or both)
The 25% bonus
You can save up to £4,000 per tax year. The government adds 25% — up to £1,000/year — paid monthly. Over the full 18–50 age range, that is a potential £32,000 in bonuses alone (32 years × £1,000).
The LISA allowance counts towards your overall £20,000 ISA annual limit.
Using it for a first home
You can withdraw penalty-free to buy your first home if:
- The property costs £450,000 or less
- You buy with a mortgage (not cash)
- The LISA has been open for at least 12 months
- You have never owned property before (anywhere in the world)
Using it for retirement
You can withdraw the full amount (contributions + bonus + growth) penalty-free from age 60. This makes it an alternative to a pension for some savers — particularly basic rate taxpayers who get the same effective 25% boost from either route.
The withdrawal penalty
If you withdraw for any other reason (not first home, not after 60, not terminal illness), a 25% penalty is applied to the entire withdrawal. Because of how the maths works, this means you get back less than you originally put in:
Example: you contribute £4,000, receive £1,000 bonus (total £5,000). Withdraw early: 25% penalty on £5,000 = £1,250 penalty. You receive £3,750 — a £250 loss on your original £4,000.
LISA vs pension
- Basic rate taxpayers: similar effective boost (25% LISA bonus ≈ 20% pension tax relief grossed up). LISA is more flexible — accessible at 60, no requirement to buy an annuity.
- Higher rate taxpayers: pension wins — 40% relief beats the 25% LISA bonus. Plus employer NI savings via salary sacrifice.
- Access age: pension from 57 (rising to 58). LISA from 60.
Calculate the pension alternative
Use the pension tax relief calculator to compare the tax relief you would get on the same contribution via a pension. The income tax calculator shows your current tax band, which determines whether pension or LISA is more efficient for you.