Banking & credit
Lifetime ISA Explained: The 25% Bonus, Rules and Pitfalls
How the Lifetime ISA works in 2026/27 — the £4,000 limit, the 25% government bonus, buying your first home, and the withdrawal charge that catches people out.
Updated June 2026 · 8 min read
General information only — not financial, legal or tax advice. Rates and rules change; check GOV.UK or official resources before making decisions.
Key takeaways
- You can pay in up to £4,000 each tax year and the government adds 25% on top — up to £1,000 a year, free.
- Open a LISA between 18 and 39; you can keep paying in and earning the bonus until you turn 50.
- Use it penalty-free for a first home costing £450,000 or less, or from age 60 for retirement.
- Withdraw early for any other reason and a 25% charge applies — which can leave you with less than you paid in.
What is a Lifetime ISA?
A Lifetime ISA (LISA) is a tax-free savings or investment account designed to help you buy your first home or save for retirement. It comes in two flavours: a Cash LISA that pays interest, and a Stocks & Shares LISA that you invest.
Its headline feature is the government bonus. For every £4 you save, the government adds £1 — a 25% top-up — paid automatically each month. Like all ISAs, the interest, growth and bonus are completely tax-free.
How much you can pay in and the bonus
You can pay up to £4,000 into a Lifetime ISA each tax year, and this counts towards your overall £20,000 ISA allowance. The 25% bonus is calculated on what you pay in, so the maximum bonus is £1,000 a year.
Over many years the bonus and any growth compound, which is why starting early makes a big difference. Our Lifetime ISA Calculator projects your pot including the bonus and growth.
| You pay in | 25% bonus | Total added that year |
|---|---|---|
| £1,000 | £250 | £1,250 |
| £2,000 | £500 | £2,500 |
| £4,000 (maximum) | £1,000 | £5,000 |
Who can open one — and the age rules
You must be aged 18 to 39 to open a Lifetime ISA. Once it's open you can keep paying in and receiving the 25% bonus until the day before your 50th birthday. After 50 the account stays open and can keep growing, but you can't add new money or earn more bonus.
These age limits catch people out: if you're 40 or over you can't open a new LISA, even if you've never had one.
- Open: aged 18–39.
- Pay in and earn the bonus: until you turn 50.
- Withdraw penalty-free: for a first home, or from age 60.
Using a Lifetime ISA to buy your first home
To use your LISA for a property purchase, it must be your first home, cost £450,000 or less, be bought with a mortgage, and the account must have been open for at least 12 months before you withdraw.
The money (including the bonus) is sent straight to your conveyancer, so it goes towards your deposit and completion. If you're buying with a partner who is also a first-time buyer, you can each use your own LISA towards the same property.
The withdrawal charge that catches people out
If you take money out before age 60 for any reason other than buying a qualifying first home, you pay a 25% government withdrawal charge on the amount withdrawn.
Because the charge is 25% of the larger, bonus-boosted balance — not the 25% bonus you received — you can end up with less than you originally paid in. For example, pay in £4,000, get the £1,000 bonus to reach £5,000, then withdraw it: the 25% charge is £1,250, leaving you £3,750 — £250 less than you contributed.
- Qualifying first home (≤ £450,000): no charge.
- Age 60 or over: no charge.
- Terminal illness: no charge.
- Any other early withdrawal: 25% charge applies.
Is a Lifetime ISA worth it?
For most first-time buyers under 40, the 25% bonus is hard to beat — it's effectively free money towards a deposit. For retirement, a LISA can complement a pension, though a workplace pension with employer contributions usually comes first.
The main risks are the £450,000 property cap (a problem in pricier areas) and the early-withdrawal charge if your plans change. Weigh those against the bonus before locking money away.
Work out what your LISA could be worth
Use our Lifetime ISA Calculator to project your pot — including the 25% bonus and expected growth — for a first home or retirement, and to see the early-withdrawal charge if you needed the money sooner.
Frequently asked questions
- How much is the Lifetime ISA bonus?
- The government adds 25% on top of what you pay in, up to £1,000 a year. Save the full £4,000 annual limit and you receive the maximum £1,000 bonus, paid monthly.
- Can I lose money in a Lifetime ISA?
- If you withdraw before age 60 for anything other than a qualifying first home, the 25% charge applies to your whole balance — including the bonus — so you can get back less than you paid in. A Stocks & Shares LISA can also fall in value.
- Can I have a Lifetime ISA and a Cash ISA?
- Yes. You can pay into a LISA and other ISA types in the same year, as long as your total contributions stay within the £20,000 overall ISA allowance, of which up to £4,000 can go into the LISA.
- What happens to my Lifetime ISA at 50 and 60?
- From age 50 you can no longer pay in or earn the bonus, but the account stays open and keeps any interest or growth. From age 60 you can withdraw the whole pot tax-free for any reason.
Try the calculator
Put this into numbers with our free UK calculators.
Need free help? See our useful UK resources including MoneyHelper and StepChange.