What is a Lifetime ISA? | Lifetime ISAs in a nutshell

In a nutshell: a Lifetime ISA
Our top picks for lifetime ISAs:

Learn more about Lifetime ISAs:

Learn more about Cash ISAs (not a Lifetime ISA):

Learn more about Stocks and Shares ISAs (not a Lifetime ISA):

Lifetime ISA vs pension:

Hello and welcome from Nuts About Money.

If you’re saving for a new home, or potentially thinking about options for retirement saving, a Lifetime ISA could be perfect for you.

We typically recommend them more for saving for your first home than retirement, we’ll run through why in a bit.

Anyway, overall they’re really great, it’s a government scheme designed to boost your savings, and therefore boost your deposit for your first home.

Whenever you add money to your Lifetime ISA, you’ll get a massive 25% bonus in cash, added directly to your account. Pretty great right?

You can save up to £4,000 per tax year, which runs from April 6th to April 5th the following year, so in total, you can get £1,000 for free each year, that’s if you’re fortunate enough to save the maximum £4,000.

So, if you’re able to save £1,000, you’ll get £250 for free.

On top of that, your money will grow tax-free, and you can withdraw it tax-free. Over time, the tax you would have paid turns into a lot of money.

There are some rules to open one however, you’ll need to be between 18 and 40 years old, and a UK resident. Although you can keep saving into your Lifetime ISA until you’re 50 years old. And you can only open and save into one each tax year.

Also, and this one is important, if you don’t use it for your first home, and want to access the money, you’ll need to pay a massive 25% fee to withdraw the money, which is technically more than the government bonus, so you’ll lose some of your own money too. That is unless you are over 60, when you can access the money without a fee. That’s why I said they’re only good for saving for your first home, or retirement in some cases.

There’s two main types of Lifetime ISA, either a Cash Lifetime ISA, or a Stocks and Shares Lifetime ISA. A Cash Lifetime ISA is just like a savings account, you add money, and you earn interest in return.

A Stocks and Shares Lifetime ISA is where your money is invested with the goal of growing it over time. These typically make more money over time than a Cash Lifetime ISA, such as 5 years or more, but the money you make isn’t guaranteed, and will go up and down along the way, so often it’s not recommended if you’re expecting to buy a home in a year or two.

And one more rule, you’ll need your account open for at least 12 months before you can use it, for instance to buy a home, so it’s a good idea to open one right now, and just add £1 so the clock starts ticking.

Now if you don’t think you’ll buy a house with it, you could choose to use it for retirement savings instead, alongside a pension. I say retirement and not any other type of saving because you can only access the money when you turn 60, otherwise you’ll have to pay that hefty 25% charge, making it typically the worst option compared to other things like a Cash ISA and Stocks and Shares ISA.

A Lifetime ISA can be a good option for retirement saving for people who aren’t buying their first home, and earn less than 50,000 pounds per year, because that 25% bonus is effectively the same as the tax you get back from the government on your pension savings, but with the benefit that you can withdraw money from a Lifetime ISA tax-free, whereas with a pension, you might pay tax.

I won't go into detail now, I'll share a link in the description covering a Lifetime ISA versus a pension, and there’s pros and cons of both, as a sneak peek, for most people a pension comes out top, but it’s good to know that if you don’t end up using your Lifetime ISA to buy a home, all is not lost, you can keep it until retirement, and still reap some great benefits.

And that’s it, pretty simple really right? And remember, open one as soon as you can to get that clock ticking down, you’ve got 12 months before you can use it.

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