Lifetime ISAs: first steps to growing your wealth

Valerie Cronshaw

Valerie Cronshaw

Financial Planning Support

24 August 2021

There are so many different products and investments out there, it’s hard to know where to start as a young person beginning to grow your wealth. In 2017 the government announced a new product for under 40s - the Lifetime ISA.

What is a Lifetime ISA?

A Lifetime ISA can be opened by anyone between the age of 18 and 39. It allows you to save up to £4,000 each tax year in a tax-free environment, either as cash or as stocks and shares. Contributions can be made into your Lifetime ISA until you are 50.

For every £4 you save into your Lifetime ISA, the government will add £1 up to a maximum of £1,000 per tax year. It is important to note that although this ISA has different characteristics to Stocks and Shares ISAs and Cash ISAs, the contributions into your Lifetime ISA still count towards your annual ISA allowance limit.

Lifetime ISA for your first home

Saving for your first home can seem a daunting experience so any additional help is welcome.  The Lifetime ISA can be used as a means to save for your first home, and it has come to replace the Help to Buy ISA for new applicants. However, a Lifetime ISA must be open and funded for 12 months before you are able to use it to buy your first property.  

Upon purchasing your home your Solicitor is able to claim the money, including the government bonus, from your Lifetime ISA and put it towards your deposit. If you are buying with another first-time buyer, you are both able to use your Lifetime ISA bonuses.

If you have already started saving into a Help to Buy ISA, you are able to open a Lifetime ISAs as well. However, you will only be able to use the bonus from one of them for your first home. Alternatively, you can transfer your Help to Buy ISA to a Lifetime ISA, up to a maximum of £4,000 per tax year.

A comparison of the two ISAs is below:

 Lifetime ISAHelp to Buy ISA
Annual contribution limits£4,000£2,400
Maximum Government bonus£33,000£3,000
Receiving Government bonusMonthlyWhen buying first home
Investment optionsCash or stocks and sharesCash only
Maximum property value£450,000 anywhere

£250,000 outside London

£450,000 within London

Penalties for accessing money25% if you withdraw other than to buy your first house or retirementNo penalty

Lifetime ISA for retirement

The second purpose of the Lifetime ISA is to help save for retirement. Although this might seem an issue for your future self, it is very important you start to think about this now, as the earlier you start saving, the earlier you could potentially retire! Upon reaching age 60 you will have full access to your Lifetime ISA to support your lifestyle. If you save the maximum amount for the maximum permitted time (from aged 18 to 50) then it could leave you with a tax-free government bonus of £33,000 to put towards enjoying your well-earned retirement.

Drawbacks of the Lifetime ISA

Although the Lifetime ISA seems like a great solution for your savings, like anything it does have some drawbacks. The main disadvantage of the Lifetime ISA is if you require the money for anything other than your first home or retirement, there is a penalty to pay. This penalty is worth 25% of the value withdrawn, meaning you could potentially get back less than you put in. This means it does not provide as much flexibility as a standard Cash ISA or Stocks and Shares ISA, so you need to ensure you have sufficient funds elsewhere to cover any planned, or unplanned, expenditure.

Get in touch

Our Wealth team are here to support you. If you have any questions about your investments or other financial matters, please do not hesitate to contact our team or your usual Johnston Carmichael Wealth adviser.


Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority.

This communication should not be read or considered as financial advice. While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm.  

This communication is based upon our interpretation of current and proposed legislation as at the date of publication. These may change in future.  

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