Lifetime ISA FAQs | Boring Money 'Best Buy LISA' | Nutmeg - Nutmeg (2024)

What is the Lifetime ISA?

The Lifetime ISA (LISA) is a government savings initiative launched in 2017 to encourage younger people to save for their first home or retirement – anyone who opens a LISA receives a 25% government bonus on their contributions. The LISA forms part of the UK government’s family of individual savings accounts (ISAs). You can open either a cash Lifetime ISA (which will earn interest) or a stocks and shares Lifetime ISA (which could benefit from potential investment returns).

Who can have a Lifetime ISA?

Any UK resident aged 18–39 can open a LISA, but your first contribution must be made before your 40th birthday — just opening an account is not enough. As long as your first contribution is made by then, you can continue contributing until the day before you turn 50.

How much can I contribute?

If you’re eligible to open one, you can contribute up to £4,000 per tax year to a LISA until the day before you turn 50. This limit is part of your overall £20,000 annual ISA allowance – so if you contributed the maximum amount of £4,000 to your LISA, you would have £16,000 left to contribute to other types of ISAs.

What’s the Lifetime ISA bonus?

What can I use a Lifetime ISA for?

You can put your savings, along with the government bonuses and any interest or returns earned, towards:

• Buying your first home up to a value of £450,000
• Anything you like, penalty free, once you turn 60

What are the benefits of a Lifetime ISA?

The government will give you a 25% bonus on every contribution you make until you reach the age of 50. So, for every £4 you invest you receive an extra £1 on top. That’s a potential bonus of £1,000 each year to put towards your first home or retirement.

And, because it's an ISA, you won't have to pay tax on any money held within your LISA – including investment returns, interest, or the government bonus.

You can choose to use this money to buy your first home, worth up to £450,000, or keep it investeduntil you turn 60. For both options, you can withdraw your money (including the 25% government bonus) tax-free.

Can I pay in more than £4,000 to a Lifetime ISA each tax year?

No. The maximum amount you can contribute to a LISA each year is £4,000.

If you'd like to make the most of your annual ISA allowance and have reached the £4,000 LISA limit, you could invest your money in a stocks and shares ISA or saving it in a cash ISA (up to the overall annual ISA allowance of £20,000).

What happens if I reach my Lifetime ISA allowance for the tax year?

Once you've used your full £4,000 LISA allowance, any subsequent Direct Debit contributions intended for your LISA pot will be redirected to "Unallocated Cash", awaiting your instruction. You’ll then be prompted to allocate your cash. You will not be able to make further contributions once you reach your LISA allowance.

For how long can I contribute to a Lifetime ISA?

You can contribute to your LISA until the day before you turn 50, as long as your first contribution is made before you turn 40.

When are government bonuses paid?

To ensure a contribution is included and the bonus paid at the end of the month, you should make your contribution so it can clear before the 5th of that month. We suggest you make your contribution at least three business days before the 5th of the month, to allow the money to reach your account in time.Find out more about when your contribution will arrive.

If you are arranging a home purchase and you want to use your LISA funds, including any bonus, to make the purchase happen, the dates of the claim periods may be very important.

Can I withdraw money from my Lifetime ISA?

Yes, but only to buy your first home up to a value of £450,000, when you’re over 60, or if you're terminally ill.

Let’s look at example: you start with an investment of £4,000. You then get a 25% government bonus, bringing your total up to £5,000. If you then decide to withdraw the full £5,000 for a ‘non-eligible’ reason, you would have to pay a penalty of 25%, which would equal £1,250. This leaves you with £3,750 – less that what you put in to begin with.

Should I open a cash Lifetime ISA or stocks and shares Lifetime ISA?

Only you can decide whether saving in cash or investing in stocks and shares is the right approach, but you’ll want to consider your goals, timeframe, and attitude to risk.

Generally, cash is a safer option for short-term savings. If you’d like to use the Lifetime ISA to save for your first home and you plan to buy it within the next three years, saving in cash is probably best.

On the other hand, a stocks and shares LISA offers the possibility of better returns in the long run. So, if you’re planning to buy your first home in more than three years’ time, or you’re investing for your retirement, opening astocks and shares LISA may suit you. Bear in mind that the value of your investment may fall and you could lose money.

You can use theNutmeg Lifetime ISA calculatorto get an idea of how much you could save in stocks and shares Lifetime ISA.

Can I transfer other ISAs into a Lifetime ISA?

If you already have a cash Lifetime ISA or stocks and shares Lifetime ISA with another provider, you can easily transfer it to Nutmeg. However, you cannot transfer other types of ISAs, including Help to Buy ISAs, into a Lifetime ISA at this time.

I’m not sure what I’m saving for. Should I have a Lifetime ISA?

If you’re not planning to buy your first home, you need to be certain that you can leave the money in the LISA until you’re 60. If accessing your money before you’re 60 for other reasons is important, you might be better off with a different type of ISA.

Find out more about Lifetime ISAs in our free guide.

Can I transfer an existing Lifetime ISA to Nutmeg?

Yes, if you already have a cash Lifetime ISA or stocks and shares Lifetime ISA with another provider, you can transfer it to Nutmeg. Just go to the ‘Transfers’ section in the lefthand sidebar of your web dashboard. Then, you’ll have to fill out the Nutmeg Lifetime ISA transfer form and post it to your existing provider. Once they receive it, they’ll contact us to coordinate transferring it over to us. We’ll let you know when the transfer is complete.

How long will my Lifetime ISA transfer take?

The timeframe of your LISA transfer depends on your existing provider, but most transfers usually take two to four weeks.

How can I track my Lifetime ISA transfer?

We’ll keep you updated on the status of your transfer via email, but you can also keep track of it by going to ‘My transfers’ in the ‘Transfers’ section of your mobile app or web dashboard.

A Lifetime ISA may not be right for everyone

As with all investing, your capital is at risk. The tax treatment depends on individual circ*mstances and may be subject to change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.

• You must be 18 to 39 years old to open one.
• If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll have to pay a 25% government withdrawal charge meaning you’ll get back less than you’ve put in.
• Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
• If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.