Lifetime ISA Calculator

The Lifetime ISA allows contributions of up to £4,000 per tax year, on which the government pays a 25% bonus of up to £1,000 per year. The bonus arrives monthly, within 4-6 weeks of each contribution, and is worked out on what you paid in during the previous month. You must be aged 18-39 to open a LISA and can keep contributing until age 50. The money comes out tax-free for a first home worth up to £450,000, or from age 60 for retirement.

Across a few years the bonus becomes serious money. Paying in the full £4,000 for 5 years puts £20,000 of your own in alongside £5,000 from the government, so £25,000 before any growth, and returns inside a stocks and shares LISA could carry that to £28,000-£30,000. Keep it up for 10 years and you contribute £40,000, collect £10,000 in bonuses and hold £50,000 before growth, or roughly £68,000 at an average 7% return. Since a 5% deposit on a £450,000 property is £22,500, a fully funded LISA covers a first-time buyer deposit several times over.

The catch is the withdrawal charge. Taking money out for anything other than a first home or retirement costs 25% of the whole amount withdrawn, not just the bonus, and because the charge applies to a larger base than the bonus did, you come out behind where you started. Deposit £1,000 and you receive a £250 bonus, giving £1,250 in the account. A 25% charge on that is £312.50, leaving £937.50, a 6.25% loss on your own contribution. The only ways past it are a terminal illness diagnosis or waiting until age 60.

The property rules are applied without much sympathy. The £450,000 cap is enforced strictly, so a purchase at £450,001 triggers the full 25% charge rather than a partial one, and completing below the cap before renovating is the workaround some buyers use. Only first-time buyer purchases qualify, which rules out a second home. Twelve months must also pass between opening the account and withdrawing for a property, and that is the trap that catches people who open a LISA once an offer has already been agreed. Starting one early, even with small amounts, gets the clock running.

The Help to Buy ISA covered similar ground before closing to new accounts in November 2019, and existing holders can carry on contributing until November 2029. It pays the same 25% bonus, but on up to £12,000 of contributions, which caps the bonus at £3,000 for life, and it only applies to properties up to £250k outside London or £450k inside it. The Lifetime ISA pays up to £1,000 every year with no lifetime ceiling on the total, and its £450k limit applies across the whole UK. Anyone holding a Help to Buy ISA can transfer it into a LISA through their provider.

A LISA can be held in cash or as a stocks and shares account, and the timescale should decide which. Cash suits a purchase that is close. Holding cash while a purchase sits 10 or more years away leaves the money exposed to inflation, which is the argument for investing it instead. Either way, the £4,000 counts towards your overall £20,000 ISA allowance for the year, so a LISA reduces what you can put into other ISAs rather than sitting on top of them.