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Lifetime ISA rules

Written by Gemma Bellamy, Senior Marketing and Content Executive

Lifetime ISAs (LISAs) can help you build a deposit for your first home faster, thanks to a generous 25% government bonus on everything you put in. But what should you be aware of before opening one?

If you’re aiming to get on the property ladder in the future, you may have heard about lifetime ISAs.

Lifetime ISAs are individual savings accounts designed to help you buy your first home sooner. Every month, the government tops up the amount you've paid in by 25%, and with an annual contribution limit of £4,000, you could get up to an extra £1,000 each tax year!

This government bonus gives your deposit savings a welcome boost. Given how tough it can be to put money aside right now, this is a game changer for many first-time buyers.

However, there are rules for lifetime ISAs that you need to consider. It’s important to understand the eligibility criteria and how you can use your lifetime ISA, otherwise you may be hit with the lifetime ISA government withdrawal charge.

Let’s take a closer look.

Lifetime ISA rules to be aware of

There’s a lifetime ISA age limit – you must be aged 18-39 to open
You can pay in (and receive the government bonus) until you turn 50
You can pay in up to £4,000 each tax year, with up to £1,000 government bonus up for grabs

You'll have to pay the government withdrawal charge if you:

Take the money out within 12 months of your first payment (12-month rule)
Withdraw the money for anything other than your first home or for life after 60
Use your lifetime ISA for a home above the property cap of £450,000

Opening a lifetime ISA

Before deciding whether to open a lifetime ISA, you must first make sure you’re eligible to do so.

Lifetime ISA age limit and eligibility

To open a lifetime ISA, you need to be aged between 18 and 39 (inclusive). If you’re aged 39, your first payment into the account must have cleared before your 40th birthday.

You’ll also need to be a UK resident or a Crown servant (e.g. a member of the armed forces serving abroad).

How many lifetime ISAs can I have?

You can have more than one lifetime ISA, but you can only pay into one each tax year. You can also transfer your lifetime ISA to another provider, but make sure you check the transfer rules for both your current and new provider first.

We accept transfers from other providers into our OneFamily Lifetime ISA.

Using your lifetime ISA

There are a few rules to keep in mind when it comes to using your lifetime ISA that might affect your decision to open one.

Lifetime ISAs are designed for:

buying your first home, or
building an extra pot of money for later life (which you can access from your 60th birthday).

If you withdraw your lifetime ISA money for anything else, you’ll be hit with the government withdrawal charge.

The government withdrawal charge

The government withdrawal charge is also known as the lifetime ISA withdrawal penalty. It essentially means that you’ll be charged 25% of the money you put in yourself, plus the government bonus, if you don’t use your lifetime ISA the way the government intended.

For example, if you put in £1,000 then the government will have added £250 (the bonus). If you withdraw the lot, your penalty would be 25% of £1,250, which is £312.50. Leaving you with just £937.50.

The Lifetime ISA 12-month rule

You’ll need to buy your home at least 12 months after you make your first payment into your lifetime ISA. If you withdraw the money earlier, you’ll have to pay the government withdrawal charge.

Lifetime ISA house purchase rules

When deciding whether a lifetime ISA is right for you, it’s important to consider what sort of home you want to buy - and how you’ll buy it.

This is because the home you buy with your lifetime ISA must meet the following criteria:

First home – the LISA is only for first-time buyers, which means you can’t own, or have owned, a home in the UK or anywhere in the world.
Property cap – the home you buy must cost no more than £450,000. Check out our article on what kind of home you could buy within the lifetime ISA limit for ideas.
A home you plan to live in – you must intend to live in the property you buy, and you must buy it with a mortgage. There are rules around the type of mortgage you can get – you cannot use a ‘Buy to Let Mortgage’, and you cannot use a private mortgage funded by someone connected with you, such as a partner or relative.
Joint mortgage – you can use your lifetime ISA if you’re buying with someone else. Even better, if they also have a lifetime ISA (and satisfy the lifetime ISA rules), you can both use your LISAs to purchase your home! The £450,000 limit on the price of the home still applies though, even if more than one lifetime ISA is used to buy the same property.
Conveyancer/solicitor - must be used to act for you in the purchase of your home (your lifetime ISA provider will pay the funds directly to them).

Paying into a lifetime ISA

So you’ve opened your lifetime ISA and you’re working out how much you’ll need to put away (while daydreaming about interiors and colour schemes).

Here’s what you need to know about payments and limits.

How much can I put in a lifetime ISA?

You can pay in up to £4,000 each tax year (which runs April to April) into a lifetime ISA. As the government bonus is 25% of what you put in, this means the maximum bonus you can get each tax year is £1,000.

Your lifetime ISA contributions count towards your overall ISA allowance (which is £20,000). So if you pay the full £4,000 into your lifetime ISA within a tax year, you wouldn’t be able to put more than £16,000 into any other ISAs in your name in the same tax year.

You can keep paying into your lifetime ISA (and getting the 25% government bonus) until you’re 50. But remember, you’ll need to wait until you’re 60 to withdraw the money (unless you’re using it for your first home) to avoid paying the government withdrawal charge.

Choosing what’s right for you

If you meet the eligibility criteria and you’re confident you’ll be able to use the product as the government intended, a lifetime ISA could be a great way to build up a first home deposit faster.

If you’re looking for a more flexible product, our stocks and shares ISA may be a better option for you.

Ready to open a OneFamily Lifetime ISA?

With our stocks and shares lifetime ISA you can start investing from just £25 per month, or with a £250 lump sum payment.

Find out about our lifetime ISA

Our Lifetime ISA invests in stocks and shares. This means it has good long-term growth potential, but the value of your investments could go down as well as up so you could end up with less money than you've put in.