It’s time I introduced you to LISA.
LISA can open doors to the starter home of your dreams.
Because a Lifetime ISA is now the only vehicle for new applicants that allows them to save for their first house purchase and receive a government bonus.
And, somewhat confusingly, it also has a role in retirement saving.
It succeeds a Help-to-Buy ISA scheme now closed to new applicants though existing holders can pay in up to £200 each month until November 2029. The government will then add 25 per cent (up to £3,000) when you buy your first home, which must have a purchase price of no more than £250,000 (£450,000 in London), be the only one you own, and be where you intend to live. The 25 per cent bonus has to be claimed by November 2030.
A Lifetime ISA (LISA) can be opened by anyone aged between 18 and 39 and similarly comes with a government bonus.
MoneySavingExpert explains: “As you need to have had a LISA for a year to be able to use it, even if you’re not sure, it’s worth opening one with £1 – just to get the clock ticking.
“You can save up to £4,000 a year in a LISA as a lump sum or by putting in cash when you can. The state will then add 25 per cent on top.”
The bonus is paid every year on the contributions you save into your LISA, until you hit age 50. Once in your account, you will get interest on it (or investment growth/loss).
The maximum total in bonuses, starting at 18 and finishing at 50, is therefore £33,000.
With Cash LISAs, you’ll earn interest on interest as you continue to save – this is known as ‘compounding’. It doesn’t count towards your personal savings allowance, so there’s no impact on your ability to earn £1,000 a year of interest tax-free as a basic-rate taxpayer from other savings (£500 if you’re a higher-rate taxpayer).
Investment LISAs are more complex as investment gains come in three main types: dividends, capital gains and bond interest. However, within a stocks & shares LISA you don’t pay tax on any of them.
Every person has their own LISA, so couples can have one each. There is no such thing as a joint LISA: you and your partner/spouse need to open separate ones.
Your chosen property must cost £450,000 or less, you’re buying with a mortgage, and using a solicitor/conveyancer.
You can take all your money out of a LISA without penalty when you’re 60 or over. Doing so ahead of time sees you charged 25 per cent of the amount withdrawn, losing you 6.25 per cent of what you contributed. So, it’s best to try to only use the LISA if the cash is for one of the two defined purposes: first-home purchase or retirement.
Once you’ve chosen a LISA provider, you’ll need to provide details including your name, date of birth, National Insurance number, address and other contact information so they can check you’re a UK citizen and of the right age to be eligible for the account. You might need to verify your identity and address at a later stage of the application.
Consumer champion Which adds: “The government is debating whether to let people borrow funds against their Lifetime ISA without incurring a charge, as long as they repay the money in full. It might also decide that money within a Lifetime ISA can be withdrawn without charge for other specific life events, in addition to buying a first home.”
Neither of these things are currently possible.