The Lifetime ISA (LISA) gives you a free 25% bonus from the government — up to £1,000 per year. See exactly how much your LISA could be worth for a first home or retirement.
A Lifetime ISA is a special type of ISA designed to help you save for two specific goals: buying your first home or funding your retirement. It works exactly like a normal ISA — all growth, interest, and withdrawals are tax-free — but with one extra feature: the government adds a 25% bonus on top of everything you pay in.
You can contribute up to £4,000 per tax year, which earns you a maximum bonus of £1,000 per year. The bonus is paid monthly by HMRC, usually 4-9 weeks after each contribution, and is invested or saved alongside your own money so it benefits from compound growth too. There is no income test — anyone aged 18-39 who opens a LISA gets the full bonus on whatever they contribute.
The LISA's £4,000 limit counts towards your overall £20,000 annual ISA allowance. So if you contribute the full £4,000 to your LISA, you have £16,000 remaining to split between Cash ISAs, Stocks & Shares ISAs, and Innovative Finance ISAs. You can keep contributing to your LISA each year until your 50th birthday.
You pay in
£4,000
Per tax year (max)
HMRC adds
£1,000
25% bonus
Total in your LISA
£5,000
Per year, before any growth
The bonus is added monthly to your LISA after each contribution. Bonus money is treated like any other LISA contribution and grows tax-free alongside your own deposits.
The table below shows what happens if you contribute the full £4,000 every year (so you receive the maximum £1,000 bonus annually). Cash LISA assumes a 4% interest rate. Stocks & Shares LISA assumes 7% average annual returns — typical for a globally diversified equity fund.
| Period | You contributed | Bonuses | Cash LISA (4%) | S&S LISA (7%) |
|---|---|---|---|---|
| 5 years | £20,000 | £5,000 | £28,200 | £31,300 |
| 10 years | £40,000 | £10,000 | £62,500 | £75,000 |
| 20 years | £80,000 | £20,000 | £155,000 | £228,000 |
| 32 years (max) | £128,000 | £32,000 | £312,000 | £547,000 |
Based on £4,000/year contributions plus the £1,000 government bonus, compounded annually. Cash LISA at 4% average interest. Stocks & Shares LISA at 7% average annual return. Past performance does not guarantee future results. Capital at risk when investing.
The LISA was originally designed to help first-time buyers build a deposit faster. If you use the money for your first home, you keep the full balance — including all the bonuses you have earned — with no penalty. There are a few rules to follow:
Property must cost £450,000 or less. This limit is the same across the entire UK, with no London uplift. If your purchase price is £450,001 or higher, you cannot use the LISA without paying the 25% withdrawal penalty.
You must be a first-time buyer. This means you have never owned a residential property anywhere in the world. If you have ever inherited a share of one, you do not qualify.
You must have held the LISA for at least 12 months. If you open a LISA and try to use it within the first year, you lose the bonus or pay the penalty. Open one as early as possible — even depositing just £1 starts the 12-month clock.
The property must be your main residence. Buy-to-let, holiday homes, and second properties do not qualify. You must intend to live in it.
You buy with a residential mortgage. Cash purchases are not eligible — the LISA must be released to your solicitor as part of a standard mortgage completion.
If you do not buy a home (or if you already own one), your LISA becomes a retirement savings vehicle. From age 60, you can withdraw the entire balance — including all bonuses, interest, and investment growth — completely tax-free. There is no penalty and no income tax due, unlike a pension where withdrawals (above the 25% tax-free lump sum) are taxed as income.
The 25% LISA bonus is mathematically equivalent to the 20% basic-rate tax relief on a pension contribution. The big difference is what happens at the other end: pension withdrawals are taxed, LISA withdrawals are not. For a basic-rate taxpayer who does not get an employer pension match, the LISA can produce a slightly larger after-tax retirement pot than a pension.
For higher-rate taxpayers, a pension is usually still better — the 40% tax relief on contributions outweighs the LISA's flat 25% bonus. The exception is if you expect to be a higher-rate taxpayer in retirement too, in which case the tax-free LISA withdrawals start to look more attractive. Many people sensibly use both: a workplace pension to capture the employer match and tax relief, and a LISA on top for additional tax-free retirement income.
If you withdraw from a LISA for any reason other than buying your first home or being aged 60+, you pay a government withdrawal charge of 25% on the entire amount you take out. This sounds like it just claws back the bonus, but the maths actually leaves you worse off than if you had never used a LISA.
Worked example. You contribute £4,000 of your own money. HMRC adds £1,000 bonus, giving £5,000 in your LISA. You then need to withdraw the full £5,000 early. The 25% charge is £1,250 — leaving you with just £3,750. You started with £4,000 of your own money and ended up with £3,750: a real loss of £250 on top of losing the bonus.
The withdrawal charge does not apply if you are diagnosed as terminally ill with under 12 months to live, or to your beneficiaries if you die. Otherwise, only open a LISA if you are confident you will use it for a first home or wait until age 60.
There are two flavours of LISA. A Cash LISA works like a savings account — your money earns interest and your capital is protected. A Stocks & Shares LISA invests your contributions in funds, shares, or ETFs, with the potential for higher returns but also the risk that the value can fall.
Use a Cash LISA if you plan to buy a home within the next 5 years. Stock market volatility could leave you with less than you put in just when you need the money. The 25% bonus alone makes a Cash LISA an excellent first-home savings tool, even at modest interest rates.
Use a Stocks & Shares LISA if your timeline is longer than 5 years — for example, if you are saving for retirement or a home purchase that is at least 5 years away. The historical return advantage of equities (around 7% vs 4% for cash) becomes significant over longer periods, especially with the 25% bonus already boosting every contribution.
You can also switch from Cash to Stocks & Shares (or vice versa) by transferring your LISA to a different provider. This does not count as a new contribution and does not affect your annual allowance.
Project your LISA bonus and growth in £ with our free compound interest calculator.
Open compound interest calculator£333/month is the maximum monthly LISA contribution (£4,000/year). Add 25% to the result to estimate the bonus.
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