Home > Lifetime ISA > Lifetime ISA allowance

Make the most of this tax year’s lifetime ISA government bonus

You can pay up to £4,000 each tax year into your lifetime ISA. This resets when the tax year ends on 5 April.

What is a lifetime ISA?

A lifetime ISA is a form of individual savings account (ISA) designed to make it easier for first-time buyers to save for their first home or for individuals to save for their retirement.

The government currently tops up everything you put in your lifetime ISA by 25%. As you can only put up to £4,000 into your lifetime ISA each tax year, the closer you can get to this limit each year the bigger the bonus you'll get.

Find out more about the lifetime ISA rules with our lifetime ISA guide.

How does the 25% lifetime ISA bonus work?

Every month, the government will top up your lifetime ISA by 25% of however much you’ve paid in during the previous month. The bonus is based only on how much money you invest, it doesn’t take into account any interest or returns.

As you are limited to paying in no more than £4,000 each tax year, the maximum bonus you can expect is £1,000 per year. To make the most of this, it might be worth considering how you can reach this limit before the tax year ends, especially if you think the following year you'll have more than £4,000 to pay in.

The bonus is paid every month that you add money into your lifetime ISA until you reach the age of 50, when you won't be able to pay in anymore.

It's worked out based on the money you invest from the 6th of the month until the 5th of the following month. The additional funds will show in your lifetime ISA at the end of that month.

Our lifetime ISA calculator can show you how quickly you can reach your savings goals depending on how much you put in each month.

What is the lifetime ISA withdrawal penalty charge?

It’s important to have a plan for the money in your lifetime ISA as there is a penalty charge for not using it as the government intended. You’ll be charged a penalty if you:

Take your money out within 12 months of opening the lifetime ISA, or
Use the money for something other than your first home (unless you’ve turned 60, when you can do what you like)

It’s worth being aware that if you end up paying a penalty, it will be more than the government will have topped your lifetime ISA up by.

The penalty is 25% of everything in the account – not just what you’ve saved. So, if you've put in £800 then the government will have added £200. Your penalty would then be 25% of £1,000 which is £250, £50 more than the bonus you've received.

Therefore, if you’re not intending to buy your first home with the money or keep it in the account until you turn 60, you could consider opening an ISA instead.

What types of lifetime ISA are available?

There are two types of lifetime ISA. Depending on your provider, you can open either a cash or a stocks and shares lifetime ISA.

Cash lifetime ISAs earn interest like current accounts do. The amount of money you make, on top of the government bonus, depends on interest rates.

Stocks and shares lifetime ISAs, on the other hand, are invested in the stock market. This means there is greater potential for the value of your investments to go up but there's always a risk it could go down if the stock market doesn't perform how we expect.

Stocks and shares have been proven to outperform cash in the long-term, so cash savers could see less returns on their investment due to low interest rates.

OneFamily only offers a Stocks and Shares Lifetime ISA.

Things to consider before taking out a lifetime ISA

As above, it's really important that you plan to use the money you put in your lifetime ISA to either buy your first home or keep it saved until you turn 60. Otherwise you will face a penalty withdrawal charge.

You also need to be aged between 18 and 39 to take one out. You'll be able to pay in until you're 50.

If you take out a stocks and shares lifetime ISA, like the Stocks and Shares Lifetime ISA offered by OneFamily, please be aware that there is a risk that you could get back less than you put in, depending on what the stock market does. You'll still receive the 25% bonus on everything you pay in, even if this does happen.