Want to know more about Lifetime ISAs? In this guide, we answer some of the most frequently asked questions.
Do my Lifetime ISA savings count towards my ISA limit for the year?
You can put a maximum of £4,000 into a Lifetime ISA each tax year.
Yes. Any money put into a Lifetime ISA will eat into the overall ISA limit for that year.
In the 2020/21 tax year, the ISA allowance is £20,000. If you put £1,000 into a Lifetime ISA, your remaining allowance, across all ISA products, is £19,000.
Transferring money from a different ISA
If you have invested money in a previous tax year into another type of ISA (for example, a cash ISA, a stocks and shares ISA or an innovative finance ISA), and transfer that into a Lifetime ISA, it will affect the annual £4,000 Lifetime ISA allowance, but not your overall ISA limit because it was already in an ISA before the current tax year began. Tax years run from 6 April to 5 April.
To transfer into a Lifetime ISA from another Lifetime ISA there is no government withdrawal charge and your annual Lifetime ISA allowance is not affected.
During the 2019/20 tax year, you invested £1,000 in a Cash ISA and then transferred it to your Lifetime ISA in the 2020/21 tax year.
In this scenario, your remaining allowance for your Lifetime ISA for the 2020/21 tax year is £3,000, but your overall ISA allowance for the tax year remains £20,000.
Are transfers from another ISA eligible for the government bonus?
Yes. Transfers to a Lifetime ISA from a previous year’s:
- cash ISA
- stocks and shares ISA
- innovative finance ISA
are all eligible for the government bonus and will not count against the £20,000 overall ISA limit for the 2020/21 tax year in which the transfer takes place.
However, these transfers do count towards the annual £4,000 Lifetime ISA contribution limit unless the transfer is from another Lifetime ISA.
Is there a limit on the size of bonus you can get?
The maximum bonus you can get in a year is £1,000 (25% of the £4,000 maximum yearly contribution).
If you open your Lifetime ISA when you turn 18 and contribute £4,000 a year, until you’re 50, you could earn up to £32,000 in bonuses.
The government has not set a minimum amount you need to save to get a bonus. However, your provider might have a minimum investment to open a Lifetime ISA.
How is the bonus calculated?
The bonus will be 25% of the amount you pay in, not including investment interest or investment growth calculated based on payments you make into your account from the 6th of the month to the 5th of the following month.
This means that if you invest £4,000 in a year, but your investment goes down in value before the claim is made, you’ll still be entitled to a bonus of £1,000 that year.
How do I claim the bonus?
Your Lifetime ISA manager will claim the bonus from HMRC for you and add it to your Lifetime ISA.
You don’t need to claim yourself.
When is the bonus paid?
Any bonus will be paid monthly and is calculated based on payments you make into your account from the 6th of the month to the 5th of the following month.
Will I get interest on my government bonus?
Yes. Once a bonus is paid into your Lifetime ISA, you can invest it just like your other ISA savings.
However, it’s a good idea to check with your provider as some may treat bonus payments very differently. Some will automatically re-invest bonus payments taking advantage of any potential growth and increase in value. Some may put your money into non-interest earning cash accounts meaning you could miss out on interest or future potential growth of your invested fund.
Is the property I’m buying eligible for the government bonus?
To be able to withdraw your Lifetime ISA savings, including the government bonus, the property you are buying must:
- be in the UK
- cost £450,000 or less
- be the only home you own
- be where you intend to live, and
- be purchased with a mortgage.
Can I use my Lifetime ISA with other government housing schemes?
Yes. You can use your Lifetime ISA with other government schemes, such as the Help to Buy: Equity Loan scheme.
I want to buy a first home with somebody else. Can we both use a Lifetime ISA?
Yes. You can each use Lifetime ISA savings to buy your first home, provided you both meet the eligibility criteria.
If only one of you meets the eligibility criteria, for example, if one of you already owns a property, then only the person who meets the criteria can use their Lifetime ISA funds.
No. You can only withdraw funds from your Lifetime ISA (without paying a charge) to purchase a first home, at least 12 months after putting money in your Lifetime ISA.
This applies to each Lifetime ISA that you open, but it does not apply to Lifetime ISA transfers.
For example, if you open a Lifetime ISA with a bank in May 2020, and transfer the account to another bank in October 2020, the 12 month period starts from May 2020.
Can I transfer my Help to Buy: ISA into a Lifetime ISA?
Yes, but the amount transferred in will count against the £4,000 LISA maximum. So, if you transfer in £1,000 after 6 April 2020 you’ll only be able to put in £3,000 to your LISA for the tax year 2020-21.
Remember, if you transfer funds from other types of ISA into your Lifetime ISA, the start date of your account is the day you opened your Lifetime ISA, not the date you opened your previous ISA.
Can I use my Lifetime ISA bonus for my exchange deposit?
Yes. Lifetime ISA funds, including the bonus, can be put towards an exchange deposit.
However, the property purchase must be completed within 90 days of your conveyancer receiving the withdrawn funds from your Lifetime ISA manager.
What happens if I become terminally ill?
If you become terminally ill and have less than 12 months to live, you will be able to withdraw some or all of the funds (including the bonus) without any withdrawal charge, regardless of your age.
You will need to provide your ISA manager with evidence from a registered medical practitioner that you are expected to have less than 12 months to live.
A registered medical practitioner must be fully registered with the General Medical Council and have a licence to practice medicine.
Can I use my Lifetime ISAs to purchase a Shared Ownership property?
If you’re buying your first home through shared ownership, your Lifetime ISA can be used towards the deposit when you buy your initial share of the property.
However, any subsequent purchase of shares will incur a 25% government withdrawal charge in the future.
More information on Lifetime ISAs