How does the Lifetime ISA bonus actually work?

The government adds 25% to everything you pay in, up to £4,000 of contributions per tax year — so a maximum bonus of £1,000 a year. The bonus is paid automatically every month on your new contributions, lands in your account, and then earns interest (or investment growth) itself. Contribute from 18 to 50 and the bonus alone can total £32,000.

What is the Lifetime ISA withdrawal penalty?

Withdrawing for anything other than a qualifying first home, age 60, or terminal illness costs 25% of the amount withdrawn. Because the penalty applies to the whole withdrawal — your money plus the bonus — it takes back more than the bonus gave. Example: deposit £4,000, get £1,000 bonus, total £5,000. Withdraw it all and the 25% charge is £1,250, leaving £3,750 — £250 less than you started with.

Can I use a Lifetime ISA to buy any house?

The property must be your first home (you've never owned property anywhere, even inherited or abroad), cost £450,000 or less, be in the UK, be bought with a mortgage, and be somewhere you'll live. Your LISA must also have been open at least 12 months. Buying with a partner? You can each use your own LISA on the same purchase — both bonuses — provided you're each first-time buyers.

Lifetime ISA or Help to Buy ISA — which is better?

Help to Buy ISAs closed to new savers in 2019, so for anyone starting now the LISA is the only option of the two. If you still hold a Help to Buy ISA, the LISA is more generous on most fronts: higher annual limit (£4,000 vs £2,400), bonus paid monthly rather than at completion (so it earns interest), and a £450,000 property cap everywhere rather than only in London. You can transfer Help to Buy savings into a LISA, though transfers count within the £4,000 annual LISA limit.

Is a Lifetime ISA better than a pension for retirement?

For most employees, the pension comes first: employer contributions are free money on top of tax relief at your marginal rate, and pensions have no equivalent of the LISA's 25% exit charge before access. The LISA shines as a supplement — especially for the self-employed (no employer to match), basic-rate taxpayers (the 25% bonus beats 20% relief), or anyone who has maxed their employer match. LISA money is also accessible tax-free at 60, earlier than the state pension.

Can I have a Lifetime ISA and a regular Cash ISA?

Yes — you can pay into a LISA and other ISAs in the same tax year. The £4,000 LISA limit sits inside your overall £20,000 annual ISA allowance, so maxing the LISA still leaves £16,000 for Cash or Stocks & Shares ISAs. You can only pay into one Lifetime ISA per tax year, though.

What happens to my Lifetime ISA if I never buy a house?

Nothing is lost — the account simply becomes retirement savings. Your money, bonuses and growth stay invested tax-free and become fully accessible with no penalty from age 60. What you shouldn't do is withdraw early: the 25% charge applies at any age before 60 (outside home purchase or terminal illness), so an abandoned house plan is a reason to leave the money growing, not to cash out.

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Best Lifetime ISAs

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Lifetime ISA eligibility: You must be aged 18–39 to open a Lifetime ISA. The government adds a 25% bonus on up to £4,000 per year. Funds can only be withdrawn penalty-free to buy your first home (property must cost £450,000 or less) or from age 60. Withdrawing for any other reason incurs a 25% government penalty — equivalent to losing 6.25% of your own money. Read our full ISA Guide →

Provider	Product		Access	Min Balance
Moneybox Top pick	Moneybox Cash Lifetime ISA	4.80% Variable	Age 60+ or first home	£1
Plum	Plum Lifetime ISA	4.75% Variable	Age 60+ or first home	£1
Tembo	Tembo Cash Lifetime ISA	4.00% Variable	Age 60+ or first home	£1
Compare LISA with other accounts See All Rates
Paragon Bank	Cash Lifetime ISA	3.51% Variable	Age 60+ or first home	£1

Moneybox

Top pick

4.80%

AER

Variable

Moneybox Cash Lifetime ISA

Interest Paid

Monthly

Access

Age 60+ or first home

Minimum Balance

£1

Plum

4.75%

AER

Variable

Plum Lifetime ISA

Interest Paid

Monthly

Access

Age 60+ or first home

Minimum Balance

£1

Tembo

4.00%

AER

Variable

Tembo Cash Lifetime ISA

Interest Paid

Monthly

Access

Age 60+ or first home

Minimum Balance

£1

Compare LISA with other accounts

See All Rates

Paragon Bank

3.51%

AER

Variable

Cash Lifetime ISA

Interest Paid

Annually

Access

Age 60+ or first home

Minimum Balance

£1

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Lifetime ISA at a glance

Best rate today: 4.80% AER
Top provider: Moneybox
Accounts tracked: 4
Providers tracked: 4
Protection: FSCS up to £120,000
Rates checked: 2 August 2026

For first-time buyers planning to purchase within a few years, the best Cash LISA rate wins — the bonus is identical everywhere, so the interest rate and app experience are the real differentiators. The 25% withdrawal penalty is the one thing to take seriously: only pay in money genuinely destined for a first home under £450,000 or for age 60.

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What is a Lifetime ISA?

A Lifetime ISA is a government-boosted savings account for two specific goals: buying your first home, or retirement. You can open one between the ages of 18 and 39, and pay in up to £4,000 per tax year until you turn 50. The government adds a 25% bonus on everything you contribute — save the full £4,000 and you get £1,000 added, every year.

The catch is what the money can be used for. Penalty-free withdrawals are allowed only to buy a first home costing up to £450,000 (after the account has been open 12 months), or from age 60, or if you're terminally ill. Any other withdrawal triggers a 25% government charge on the amount withdrawn — which claws back the bonus and some of your own money too.

The £4,000 you pay into a LISA counts within your overall £20,000 annual ISA allowance, and like other ISAs, all interest or growth is tax-free. LISAs come in Cash (savings, FSCS protected) and Stocks & Shares (invested, capital at risk) versions.

How to open a Lifetime ISA

You must be 18–39 to open a LISA — but once it's open you can keep contributing until 50, so opening one before your 40th birthday preserves the option even with a small deposit.

1Step 1 of 5

Check you're eligible: aged 18–39, UK resident, and — if buying — you must be a genuine first-time buyer purchasing a home up to £450,000.

2Step 2 of 5

Choose Cash or Stocks & Shares: cash for a home purchase within about five years, investing for retirement or longer horizons.

3Step 3 of 5

Compare providers in the table above. The bonus is the same everywhere, so the rate (or platform fees) and service quality are what differ.

4Step 4 of 5

Open online or in-app with your National Insurance number, and remember the account must be open 12 months before a house purchase — even £1 starts that clock.

5Step 5 of 5

Pay in up to £4,000 per tax year. The bonus lands automatically each month on new contributions — no claiming needed.

Lifetime ISA pros and cons

Pros

25% government bonus — up to £1,000 of free money every year
All interest and growth is tax-free, like any ISA
Bonus is paid monthly, so it starts earning interest quickly
Cash LISAs are FSCS protected up to £120,000
Can be used alongside other ISAs within your overall allowance

Cons

25% penalty on withdrawals for anything other than a first home, age 60, or terminal illness — you can get back less than you put in
First home must cost £450,000 or less, a real constraint in London and the South East
Must be opened between 18 and 39, and contributions stop at 50
Annual limit of £4,000 is lower than the full ISA allowance
Account must be open 12 months before using it for a home purchase

Is my money safe in a Lifetime ISA?

Cash Lifetime ISAs are deposit accounts protected by the FSCS up to £120,000 per person, per authorised banking licence — the government bonus is protected just the same once it's in your account. Stocks & Shares LISAs carry investment risk: the FSCS investment protection (£85,000) covers provider failure, not market falls.

The bigger "safety" consideration with a LISA is the withdrawal charge, not provider risk. A 25% penalty on a withdrawal is larger than the 25% bonus on a deposit (the maths is asymmetric — you lose about 6.25% of your own money), so treat LISA contributions as committed until you buy or turn 60.

Lifetime ISAs and tax

Like every ISA, all interest and investment growth inside a LISA is free from income tax and capital gains tax — and the government bonus itself is tax-free too. Nothing to declare, ever.

Your LISA contributions (up to £4,000) count within the overall £20,000 annual ISA allowance, leaving the remainder available for Cash or Stocks & Shares ISAs. For retirement saving, compare against a pension: pensions offer tax relief at your marginal rate and employer contributions, so a workplace pension usually comes first — the LISA is a strong supplement, especially for the self-employed or basic-rate taxpayers.

Work out what you'll keep after taxFree UK savings tax calculator — personal allowance, tax bands and take-home interest.

Cash LISA vs Stocks & Shares LISA

The bonus works identically in both — the difference is what happens to the money once it's in:

Cash Lifetime ISA

A savings account with the bonus on top: capital protected, FSCS covered, interest guaranteed by the rate. The sensible default for first-home deposits you'll need within roughly five years — a market dip at the wrong moment can't shrink your deposit.

Stocks & Shares Lifetime ISA

Contributions (and bonuses) are invested. Over the decades-long horizon of retirement saving, investing has historically outpaced cash — but values fluctuate, and fees eat into the bonus advantage, so compare platform charges carefully.

Lifetime ISA FAQs

Straight answers to the questions savers actually ask.

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Written by

Jonny Pease

Reviewed by

Jan Watermann

Rates checked 2 August 2026

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This page is for information only and is not financial advice. Rates and account terms can change at any time — always confirm the details on the provider's website before opening an account. Read our full disclaimer.

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