The Lifetime ISA has been labelled as a no-brainer for first time buyers, thanks to its 25% government bonus! As the UK’s largest Lifetime ISA provider, we’re here to answer your top Lifetime ISA questions, so you can decide whether it’s right for you.
Getting started with a Lifetime ISA 🏠
What is a Lifetime ISA?
The Lifetime ISA (LISA) is a product designed by the government to help people aged 18-39 to buy their first home (up to £450,000) or save towards retirement. With a Lifetime ISA, you can pay in up to £4,000 each tax year and get a 25% government bonus on all savings. That means for every £4 you save, you get £1 for free. If you pay in the maximum £4,000 each tax year you’ll receive £1,000 for free each year! Over time, these bonuses could give you a real head start.
How to open a Lifetime ISA
To open a Moneybox Lifetime ISA, simply download the Moneybox app and get started with £1. You can choose between our market-leading Cash Lifetime ISA, which offers an interest rate of 0.85% AER (variable) including a 0.5% base rate (variable) and a fixed one year bonus interest rate of 0.35%, or our Stocks & Shares Lifetime ISA, which allows you to invest your savings in the stock market. Remember, as with all investing, the value of your investments can go up and down, and you may get back less than you invest.
How much can you put in a Lifetime ISA?
You can save up to £4,000 in a Lifetime ISA each tax year and continue contributing until you are aged 50.
Can anyone open a Lifetime ISA?
To open a Lifetime ISA, you must be aged 18-39. If using the Lifetime ISA to save for your first home purchase, you must be a first time buyer. Your Lifetime ISA must be open for at least 12 months before using it to purchase your first home and the time starts from your first deposit into the account. You can use it to buy a property up to £450,000 in value, anywhere in the UK!
How does the Lifetime ISA work for retirement?
The Lifetime ISA can also be used to save for retirement. You can withdraw the value of your Lifetime ISA when you reach 60 (or any time after). However, you can only pay into your Lifetime ISA until you are 50. Thereafter, your savings will continue to accrue interest (Cash Lifetime ISA), or receive investment gains or losses (Stock & Shares Lifetime ISA) in the 10 years in between.
What’s the difference between a Cash Lifetime ISA and a Stocks & Shares Lifetime ISA?
A Cash Lifetime ISA works like a cash savings account, in that you earn interest on funds held in the account. With a Stocks & Shares Lifetime ISA, rather than earning interest, you invest your money in funds. Investing over the long term (5 or more years) can offer higher returns, although it’s important to remember that the value of investments can go up and down, and you may get back less than you invest.
Can you use the Lifetime ISA to buy a home with someone else?
Yes! You can use your Lifetime ISA to buy a home with another person regardless of whether or not they’re also a first time buyer. You can also use the Lifetime ISA to buy with another Lifetime ISA holder, or someone who holds a Help to Buy ISA. Please note, however, that the £450,000 price limit on the home you buy does not increase if two or more LISAs are used for the same property purchase.
The Lifetime ISA government bonus 💰
When is the Lifetime ISA bonus paid?
Lifetime ISA bonuses are paid out at the end of each month, and are based on your total collections in the previous month. For example, for funds collected from your Moneybox account between the 5th of January and the 4th of February, you’d receive the 25% bonus at the end of February.
What is the maximum government bonus you can earn?
If you contributed the maximum amount of £4,000 every tax year (from age 18-49 inclusive) you could receive £32,000 in bonuses from the government.
ISA rules 📋
Can you have other types of ISA with a Lifetime ISA?
Yes you can! Under existing ISA rules, you can pay into one of each type of ISA per tax year, for example, a Cash ISA, a Stocks & Shares ISA and a Lifetime ISA.
What is the Lifetime ISA contribution limit?
For the 2020-21 tax year, the annual contribution limit for the Lifetime ISA is £4,000 per tax year – this counts towards the overall annual ISA contribution limit of £20,000.
The Lifetime ISA government withdrawal penalty ❗
What is the Lifetime ISA government withdrawal penalty?
If you need to withdraw money for any reason other than your first home (up to the value of £450,000) or retirement, you’ll pay a government charge on the value of your withdrawal. The government has confirmed that the Lifetime ISA withdrawal penalty will revert back to 25% from 6 April 2021. It was temporarily reduced to 20% in May 2020 to support people who needed early access to their savings during the coronavirus pandemic.
When does the withdrawal penalty apply?
The standard 25% government withdrawal penalty means that from 6 April 2021, if you withdraw money for any reason other than buying your first home (up to the value of £450,000) or for 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.
What is the last date you can withdraw at the 20% withdrawal penalty?
If you want to make a partial or full withdrawal from your Moneybox Lifetime ISA at the 20% penalty, we’ll need to have confirmed receipt of your withdrawal request by the following dates. For a Stocks & Shares Lifetime ISA, this date is midday on the 25th of March, and for a Cash Lifetime ISA, this is midday on the 31st of March. This is to ensure your withdrawal completes before the penalty returns to 25%. Any withdrawals actioned after this date (including subsequent withdrawals of pending deposits or government bonuses) will have the 25% penalty applied.
Help to Buy vs Lifetime ISA ⚖️
What’s the difference between a Lifetime ISA and a Help to Buy ISA?
You can read about the Lifetime ISA and Help to Buy ISA key differences in our blog, or see them at a glance in the table below:
Can you have a Help to Buy ISA and a Lifetime ISA?
You can have a Help to Buy ISA and a Lifetime ISA at the same time, and pay into both accounts in the same tax year, but you can only use the bonus from one of them towards buying a home.
Can you transfer your Help to Buy ISA into a Lifetime ISA?
You can transfer a Help to Buy ISA into a Lifetime ISA, but the amount you transfer will count towards your annual £4,000 limit. For example, if you transfer £3,000, you can only save another £1,000 into your Lifetime ISA in that tax year.
How do you transfer a Help to Buy ISA into a Lifetime ISA?
If you have a Help to Buy ISA you’d like to transfer to Moneybox, you can request a transfer form in the app by going to Settings > Transfer > Transfer in. All transfers are currently being processed electronically, so we’ll need to receive the completed transfer form either via the in-app chat, or via email at firstname.lastname@example.org. Please note that we currently aren’t able to accept transfers in from the following providers: Paragon, One Family, Chelsea Building Society, and National Counties.
Tax treatment depends on individual circumstances and is subject to change.