This article appears as part of the Money HQ with Ben Stark newsletter.


The Lifetime ISA (LISA) replaced the government’s Help to Buy ISA scheme at the end of 2019.

LISAs were designed to help younger savers get on the property ladder or start to save for later life. And they look attractive. For every LISA contribution you make, the government will add 25% – tax-free.

LISAs are seen by some as an attempt to kill two birds with one stone – trying to satisfy both short-term savings for a house, and long-term savings for retirement. But they still have relatively low take up.

So, should you opt for a LISA?

What is a Lifetime ISA?

Anyone aged between 18 and 40 can open a LISA. You can save up to £4,000 each tax year, right up until you’re 50, and the government will bump that up with the 25% tax free cash bonus. You can withdraw the money to buy your first house (so long as it doesn’t cost more than £450,000) after 12 months – or you can withdraw the whole pot once you turn 60, to o what you like with once you retire.

What’s the difference between a LISA and the other ISAs?

All ISAs are simple, straightforward ways to save – and most importantly, they’re very tax efficient. The main difference between LISAs and the other three types of ISA is the 25% government bonus added to any LISA contribution. And – added bonus – the government contributions don’t count as part of your annual £20,000 ISA allowance.

But there is a catch. LISAs were launched specifically to help first time buyers get their first home, or to save up for later life. Withdraw the money for any other reason, and you’ll be liable for a 25% government charge on the whole amount – bonuses and all. Which could mean that you end up with less money than you’ve paid in.

And you should be aware that if you’ve ever owned any type of property or land anywhere, no matter how small, you won’t be eligible for the cash bonus on property purchase.

Can I pay into more than one LISA in the same year?

You can pay in a maximum of £20,000 across all four types of ISAs in any tax year – but you can only pay into one of each type each year. So, you could deposit £4,000 in a LISA, and up to £16,000 in a Cash ISA, a Stocks and Shares ISA or an Innovative Finance ISA. But you couldn’t pay into, or open, two Cash ISAs in the same tax year.

Should you transfer a Help to Buy ISA into a LISA?

Many savers still have Help to Buys ISAs running, although you can’t actually open one anymore. But it is possible to transfer your investment from one to the other – and LISAs do offer some advantages. A LISA gives first time home buyers slightly more flexibility than the Help to Buy ISAs.

Firstly, the annual contribution allowance is £1,600 higher. And secondly, the cap on property value is £450,000 anywhere in the UK. The Help to Buy scheme has a £250,000 maximum on properties outside London.


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However, LISAs are still more restrictive for savers who may need to access their money early, with that hefty withdrawal charge of 25% that's applied to the value of the entire pot.

You can opt for a cash LISA or a Stocks and Shares LISA, though hardly any providers offer a stocks and shares option.

Despite the higher allowance and government bonus, if you’re saving for a first home, you may still be better off with a Stocks & Shares ISA which has the potential to generate a better rate of return, if you’re not looking to buy in the near future.

Are LISAs a good way to save for later life?

LISAs have had a bit of a chequered past when it comes to their suitability as a retirement savings option. Just one year after the LISA launched, MPs called for reform, citing "its complexity, perverse incentives and lack of complementarity with the pensions savings landscape."

The fact remains that the 25% bonus under the LISA is far less generous than pension tax relief for higher earners, who can claim relief at 40 or 45% on their contributions, assuming anything over the basic rate is claimed via their tax returns.

The Herald:

LISAs versus workplace pensions


Most people will still be better off saving for retirement via their workplace pension. Not only do eligible contributions attract tax relief, they also get that all-important employer top up.

The LISA shouldn’t be seen as a replacement for a pension. Workplace pensions can give you extra money from employer contributions and higher rate tax relief, so you will not get any more in a LISA. But if you want to buy a first home and are saving for a deposit, then the 25% government bonus is a good deal.

LISAs certainly have a role to play in a diversified financial plan, depending on your personal life goals. But it’s always best to seek expert financial advice before you commit, to see whether a LISA will be the right choice for you.

Lifetime and innovative Finance ISAs are not available through St. James's Place.

The value of an investment will be directly linked to the performance of the funds selected and the value may therefore fall as well as rise. You may get back less than you invested.

An investment in a Stocks and Shares Lifetime ISA will not provide the same security of capital associated with a Cash Lifetime ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and generally dependent on individual circumstances.


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