What Is LISA, Life Individual Savings Account
Do not save what is left after spending; instead spend what is left after saving. by Warren Buffett
This article was originally published 18.06.2024 and reviewed on 17.07.2026
What is LISA
Lifetime Individual Savings Account (LISA) can be opened by anyone over 18 in the UK until their 40th birthday. These savings can be used towards buying a first home or used later once retired. You will not be able to open an account after your 40th birthday and will not be able to put money in the fund after you turn 50.
I have mine with Bath Building Society and am happy about their service, friendly, welcoming, and easy to get in touch with. Here is why I would recommend you consider the LISA account.
The maximum amount you can invest in LISA is 4,000 GBP a year, which also counts towards your ISA annual limit.
Why do I believe it is worth investing in LISA?
- You receive a 25% bonus from the UK government on funds invested, i.e. 1,000 GBP on 4,000 GBP invested.
- If you choose the bank or banking society wisely, you also receive the annual interest!
- The savings earnings are tax-free.
- You can use the funds earlier than retirement towards buying a first home
- Your funds are protected up to 85k within a bank, authorised by the FCA.
Calculations
Example: by using the Nottingham Society LISA calculator, if we contribute from the age of 18 a maximum of 4k a year, we shall get around 294,553 pounds by the age of retirement, which includes a bonus of 25% and savings interest.
I did not know about this account until just before 40, but I have opened it anyway, because I can see a clear benefit. Even if I only have about 10 years’ worth, I aim to put a maximum per year and around 50 move to the higher interest account. Once I am 60, I can draw these funds tax-free (if nothing changes!). I should hit around £78,665, which, with my spending, can last for a few years.
What you need to know
- If you need to withdraw cash from that account, there will be a 25% charge.
- You cannot top up after your 50th birthday
- The first home must cost less than 450k
Can you have more than one LISA, yes you can, but you can only contribute to one of those per year. More information on the HMRC website.Bath Building Society LISA
Here are the pros and cons of opening a LISA account in the UK.
Pros of Lifetime ISA (LISA):
- Government Bonus:
- 25% Bonus: For every £4 you save, the government adds £1, up to a maximum of £1,000 per year. This bonus can significantly boost your savings over time.
- Tax-Free Growth:
- No Capital Gains or Income Tax: Any interest, dividends, or capital gains within the LISA are tax-free.
- Dual Purpose:
- First Home Purchase or Retirement: The LISA can be used either to purchase your first home or for retirement savings, providing flexibility in how you use the funds.
- High Contribution Limit:
- Annual Limit: You can save up to £4,000 per tax year, which can help build a substantial amount over time.
- Encourages Saving:
- Incentive to Save: The government bonus and tax-free status provide strong incentives to save regularly and build a financial cushion for the future.
Cons of Lifetime ISA (LISA):
- Withdrawal Penalty:
- 25% Penalty: If you withdraw money for reasons other than buying your first home or after age 60, you incur a 25% penalty. This effectively means losing the government bonus and some of your own contributions.
- Age Restrictions:
- Opening Age: You can only open a LISA if you are between 18 and 39 years old.
- Contribution Age Limit: Contributions can only be made until you turn 50.
- Home Purchase Conditions:
- Property Value Cap: The property you buy must be worth £450,000 or less.
- Time Restrictions: You must have held the LISA for at least 12
Disclaimer: None of the information provided is financial advice, just my own opinion. #LifetimeISA #PensionSavings
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