A Lifetime ISA (LISA) lets you save up to £4,000 a year and get a 25% government bonus, worth up to £1,000 a year, towards your first home or for later life. You must be 18 or over but under 40 to open one, and you can keep paying in until you turn 50. Penalty-free withdrawals are allowed for a first home costing £450,000 or less, from age 60, or if you are terminally ill. Any other withdrawal costs 25% of the amount taken out, so you can get back less than you paid in. The government has said the LISA will be replaced by a new First Time Buyer ISA. Until that new product is available, you can still open a LISA, and existing holders can keep saving into theirs under the current rules.
The rules at a glance
| Rule | 2026/27 position |
|---|---|
| Annual limit | £4,000, counting towards the £20,000 overall ISA allowance |
| Government bonus | 25% of payments, so up to £1,000 a year |
| Age to open | 18 or over and under 40 |
| Last payments | Payments and bonus stop at 50; the account stays open |
| Home purchase | First home, £450,000 or less, with a mortgage, at least 12 months after the first payment |
| Retirement access | From age 60, with no charge |
| Other withdrawals | 25% withdrawal charge |
You can hold cash, stocks and shares, or a mix of the two. You must be UK resident, or a Crown servant or armed forces member serving overseas, or their spouse or civil partner, to open and pay into one.
How the 25% bonus and the 25% charge interact
The bonus and the charge are both 25%, but they are not symmetrical. The bonus is 25% of what you pay in. The charge is 25% of what you take out, and what you take out already includes the bonus. That means an unauthorised withdrawal costs you some of your own money as well as the bonus.
Gov.uk's example: you pay in £800 and the bonus adds £200, so the pot is £1,000 with no growth. Withdraw the lot for a non-qualifying reason and the charge is £250, leaving you with £750. That is £50 less than you put in, a 6.25% loss on your own savings. If you need £120 in cash, you have to withdraw £160 to cover the £40 charge.
Using a LISA to buy your first home
The Individual Savings Account Regulations 1998 set out the conditions for a penalty-free home purchase withdrawal:
- First-time buyer. You must never have owned a residential property, anywhere in the world;
- Price cap. The purchase price must not exceed £450,000, and the cap is the same across the UK;
- 12-month wait. The LISA must have been open for at least 12 months after your first payment;
- Mortgage and conveyancer. You must buy with a mortgage, and the provider pays the money directly to your conveyancer or solicitor;
- Sole or joint purchase. You can buy alone or with someone else. If you both have a LISA and are both first-time buyers, you can both use your savings and bonus.
In higher-priced areas, check local prices before relying on the account. If the property costs more than £450,000, the withdrawal is unauthorised and the 25% charge applies.
Worked example: a saver who starts at 25
Ella opens a LISA at 25 and pays in £4,000 a year for five years. She receives £5,000 of bonus on her £20,000. Ignoring growth, she has £25,000 towards a deposit at 30. If she instead kept paying in until her 50th birthday and drew the money at 60, the bonus alone would total up to £25,000 over 25 years of saving.
Now suppose that at 30 Ella moves to an area where the flat she wants costs £475,000. Taking the money out would trigger the 25% charge: £6,250 on a £25,000 pot, leaving her with £18,750, which is £1,250 less than she paid in. She may do better to leave the LISA invested until 60, or use it for a cheaper first home. (Our arithmetic, ignoring investment growth and interest.)
LISA or pension for retirement saving?
For later-life saving, a LISA is usually compared with a pension. Paying £4,000 into a LISA gives you £5,000, the same uplift a basic rate taxpayer gets from relief at source when £4,000 net becomes £5,000 gross in a pension. The differences are:
- Tax on the way out. There is no tax on interest, income or gains in an ISA, so LISA withdrawals from 60 are tax-free. With a pension, you can usually take up to 25% as a tax-free lump sum, and other withdrawals count as taxable income;
- Higher rate relief. A higher or additional rate taxpayer gets more relief from a pension;
- Employer money. Employer pension contributions have no LISA equivalent, so do not give up a matched workplace contribution to fund a LISA;
- Access age. You can access a LISA at 60. The earliest age for a pension is currently 55 and rises to 57 from 6 April 2028.
The First Time Buyer ISA and other changes
In June 2026 the Treasury consulted on a new First Time Buyer ISA, which will be offered in place of the LISA. As proposed, the bonus would be paid only when you withdraw to buy a first home with a mortgage, and there would be no withdrawal charge. The consultation says:
- Existing LISAs continue. Until the new product is available, you can still open a LISA. Existing holders will be able to keep saving into their LISA under the existing rules indefinitely;
- Funds can be combined. LISA holders will be able to use money in both their LISA and the new account for the same purchase, though they can only save into one of them in a tax year;
- Details are not final. The subscription limit, bonus rate and launch date are still to be set.
Separately, from 6 April 2027 the government plans a £12,000 annual limit on cash ISAs for people under 65, within the £20,000 overall allowance. Our ISA allowance guide covers that change, and our pension tax relief guide explains the pension side of the comparison.
Sources: GOV.UK: Lifetime ISA; GOV.UK: Individual Savings Accounts; GOV.UK: Tax when you get a pension; Individual Savings Account Regulations 1998 (regs 4ZA and 10A and the Schedule); Savings (Government Contributions) Act 2017, Schedule 1; HM Treasury: First Time Buyer ISA consultation; Finance Act 2004, s279.
If you are weighing a LISA against pension saving as part of a wider plan, our private client tax and tax planning teams can model the options for you.