What does LISA stand for?
LISA stands for lifetime individual savings account, or Lifetime ISA. It’s a type of ISA, and so qualifies as a tax-wrapper – meaning you won’t pay any taxes on your savings or investment gains held within a LISA.
What are Lifetime ISAs used for?
A Lifetime ISA is a great option if you’re looking to buy your first home. That’s because, aside from being a tax-wrapper, when you save or invest with a Lifetime ISA you’ll also get a government bonus of 25% on all of your contributions.
You can save or invest up to £4,000 each tax year into a Lifetime ISA, giving you a maximum annual bonus of £1,000, which can help you buy your first home faster.
You’ll earn the 25% LISA government bonus on everything you contribute – so save £4 and you’ll get £1 for free. Save £1,000, and you’ll get £250.
You can also pay into your Lifetime ISA until you turn 50 and withdraw your savings for retirement at age 60. In the ten years in-between, you’ll continue to accrue cash or investment gains/losses, depending on the type of LISA it is.
What are the different types of Lifetime ISA
There are two types of Lifetime ISA that you can choose from: a Cash LISA, or a Stocks & Shares LISA.
A Cash Lifetime ISA is great if you’re looking to buy your first home in the next few years. Your money will be held as cash, and you’ll earn an interest rate on your contributions. The Moneybox Cash LISA is market-leading, and has been singled out as Money Saving Expert’s top pick.
A Stocks & Shares Lifetime ISA is a good option if buying your first home is a long-term goal – usually more than five years in the future. Your money will be invested in the financial markets, which can mean you end up taking on higher short-term risk for the possibility of higher long-term gains.
With the Moneybox Stocks & Shares LISA, you can invest in our three simple Starting Options. These automatically spread your money across a range of different asset types and investment opportunities according to your individual appetite to risk.
Lifetime ISA pros
Here’s a breakdown of the benefits of using a Lifetime ISA:
- You can continue paying into a Lifetime ISA until you reach age 50.
- If you contributed the maximum amount of £4,000 every year (from age 18-49 inclusive) you could receive £32,000 in bonuses from the government.
- Save up to £4,000 each tax year with no monthly deposit limits.
- You can use the Lifetime ISA to buy a property valued at up to £450,000 anywhere in the UK.
- Your bonus is paid monthly, so you’ll earn interest on your bonuses as well as your own contributions.
- Can be used either to buy a first home, or save for retirement.
Lifetime ISA cons
Here are some of the disadvantages of using a Lifetime ISA:
- You can only open one if you are aged 18-39.
- Your Lifetime ISA must be open for more than 12 months before you can use it to purchase your first home. Your LISA isn’t counted as open until you make your first deposit.
- If you withdraw money for any reason other than buying your first home (up to £450,000) or retirement, you’ll pay a government charge of 25% on the amount you withdraw. This means you’ll get back less than you’ve put in.
If you need to withdraw money for any reason other than buying your first home or for retirement, you’ll pay a 25% government penalty on the amount you withdraw. This means you’ll get back less than you’ve put in. Please note, this excludes investment gains/losses and fees for a Stocks & Shares Lifetime ISA.
If you’re using a Lifetime ISA for retirement, it’s treated differently for tax purposes compared to a pension. Remember, tax treatment depends on your individual circumstances and may be subject to change in future. If you pay into a Lifetime ISA and opt out of your workplace pension, you will not benefit from any employer-matched contributions and it may affect your current and future entitlement to means-tested state benefits. If considering the Lifetime ISA for the purposes of retirement, we recommend you speak with an independent financial advisor.