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        Updated: April 06, 2024

        Is A Lifetime ISA worth it?

        Considering applying for a lifetime ISA? Read up on the advantages and disavantages of them in our guide before you get started.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in ISAs. Ask us a question and we'll get the best expert to help.

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        It’s not often that the UK government dishes out free money, but that’s exactly what they’re offering with Lifetime ISAs (LISAs) as a way or rewarding people for saving towards their first home or retirement. And while they’re growing in popularity since the Help to Buy: ISA scheme ended in 2019, if you’re wondering whether this scheme is too good to be true and how safe your money really is, you’re not alone.

        In our guide, we examine the pros and cons of Lifetime ISAs and whether they meet your individual needs, plus much more. Read on to get started or click a link from the menu below.

        Are Lifetime ISAs worth it?

        Whether taking out a Lifetime ISA is a good idea or not will depend on a combination of different factors, including:

        • What you want to save up for
        • How much you want to save each year
        • Your age
        • Your appetite for risk

        Because there are so many elements involved, it’s recommended that you speak with a financial advisor before you make the decision to move funds into a Lifetime ISA, as you would only have a 30-day gap to undo it should you change your mind.

        For some, a Lifetime ISA could provide them with a unique opportunity to benefit from the free money generated, as well as the interest and/or investment returns on their savings, while for others it may not provide them with enough funds to meet their financial goals.

        See our sections below to compare the pros and cons of saving with a Lifetime ISA.

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        What are the advantages of LISAs?

        As we’ve touched on, the main selling point of the Lifetime ISA is the free cash pay-out from the government, as you’d earn £1 for every £4 you put in. While it’s not quite money for nothing, you’d basically get paid to save. And as with all other ISAs, a Lifetime ISA is tax-free once you’re ready to withdraw it.

        Touching on tax, not only is the money you contribute tax-free, but also the interest and/or investment returns made on your money. The bonus is also not taxed, so all-in-all you could be walking away with a healthy profit if you play your cards right.

        It’s also worth mentioning that, unlike with a Help to Buy: ISA where you’d only get your bonus once your solicitor requested it (and you could only use it after you’d exchanged on your deposit), a Lifetime ISA pays its members the 25% bonus each month, so you can benefit from compound interest (where interest is earned from previously earned interest). Not only is there less faff involved, but there’s also more money in it for you, too.

        For first-home buyers

        You can invest up to £4,000 a year into your Lifetime ISA account, which means that you could get a healthy £1,000 bonus on top of your savings. A LISA can be topped up annually or monthly, giving you the freedom to decide whether you want to contribute a lump sum or budget with regular investments.

        So, if you’re able to contribute the maximum yearly amount for an ISA, you could grow your funds much quicker and get your first home sooner. Also, if you’ve already been putting money into a normal savings account, you could transfer it to a Lifetime ISA and let it benefit from the 25% bonus.

        If you’re planning on making a big financial decision, it’s always worth getting the advice of an expert before you decide to transfer your funds, as there may be implications involved. See our ‘What are the potential drawbacks’ section below for more information about the potential cons.

        For retirement savings

        You can open a LISA between the ages of 18-39 and continue saving into it and benefitting from the 25% bonus until you reach 50. Even if you open your LISA account at age 39, you would still have 10 years to pay in and get your bonus, so if you invested the maximum amount of £4,000 per year and gained a boosted £1,000, you’d have £50,000 – and that’s not including any interest incurred within that time, or any returns you’d get before you could take it out at 60.

        Once it’s time to withdraw your funds, there’s no tax to pay – unlike a pension, where you must pay tax on 75% of your pot. While it’s not recommended that a Lifetime ISA should replace a pension plan, it can work alongside your pension to maximise your retirement income.

        What are the potential drawbacks?

        You must be a UK resident, and you can only open a LISA between the ages of 18-39, after which you can keep topping up your account and receive your 25% bonus until you reach 50. Your £4,000 annual allowance will also count towards your £20,000 ISA allowance (for the tax year 2019/2020), so you will have instead £16,000 to invest in other ISAs such as a stocks and shares ISA.

        And while ISAs in general are great for being tax-free, it could also come back to bite you if you decide to withdraw your funds for any other reason other than buying your first home, before you reach 60, or if you’re terminally ill. Not only would you lose your bonus, but you’d also incur a 25% exit penalty fee, meaning you’d walk away with less than what you’d put in. Even transferring your LISA funds into another ISA would incur these charges.

        Bear in mind that while you can open multiple Lifetime ISAs during your lifetime, you cannot open more than one during each tax year, and you can only pay into one at a time as well. Also, the 25% government bonus will only be applied to one.

        Whether you’re wanting to buy your first home or save for your retirement, see our sections below to find how the potential drawbacks of a LISA could affect you.

        For first-home buyers

        While the 25% top-up from the government can boost your savings considerably to put towards your first home, it cannot cost more than £450,000 and you won’t be eligible for the scheme if you inherited property, even if you sold it on.

        It must also be a place where you intend to live, so you cannot use a Lifetime ISA if you plan on taking out a buy-to-let mortgage. You also must use a LISA in conjunction with a mortgage and not use it to buy a property outright.

        Then there’s also the length of time needed to make the most of this scheme. You can request your bonus to be paid towards your first home after a year of investing, though LISAs are considered longer-term investments.

        This is to give your money the opportunity to grow, so it’s recommended that you keep topping up your account for five years. This could be a problem for people looking to get on the property ladder sooner than this.

        For retirement savings

        While you can top up your LISA and gain a 25% bonus on top of what you save until the age of 50, you cannot access your funds until you reach 60. During these 10 years your funds will no longer benefit from the 25% top-up from the government, though your money will still generate interest in that period.

        Other considerations

        If you receive means-tested benefits or plan to do so in the future, speak with an advisor before you take out a Lifetime ISA. This is because funds in a Lifetime ISA are treated as savings, and therefore could impact your chances of qualifying for means-tested benefits.

        Also bear in mind that the money saved in a LISA will be seen as an asset if you hit financial trouble, and debt recovery agencies may require you to contribute it towards your arrears.

        Are Lifetime ISAs safe?

        All ISAs carry an element of risk, including Lifetime ISAs, though the risk of losing your money through this scheme is generally considered low as they are a government product. However, it will also depend on the type of LISA you opt for, as a cash LISAs works like normal savings accounts and are therefore considered lower-risk and ‘safer’ for those who aren’t as familiar with investments.

        A stocks and shares ISA, on the other hand, invests your money directly into the stock market, so while the return on your investment may be greater, you could also lose out if the stock markets stumble.

        To make sure that you invest in a scheme that you’re comfortable with, talk with a financial advisor. They can highlight all the potential risks as well as the benefits of a Lifetime ISA, as well as any other financial scheme.

        Are there similar products available?

        Yes, there are, though how fitting these financial products are for you will depend on your circumstances. By working with a financial advisor, they would be able to recommend the right products and tailor them to suit your needs. Some of these products may include:

        While the LISA is currently the only government scheme offering a 25% bonus on top of your savings since the Help to Buy: ISA scheme closed to new applicants in 2019, you could still benefit greatly from another product or a combination of them.

        Speak to an expert

        We work with independent financial advisors who are all regulated by the Financial Conduct Authority (FCA) to ensure that you will always receive the best advice. So, if you’re weighing up the pros and cons of taking out a Lifetime ISA and would like tailored advice to help you make an informed decision, they can help.

        Make an enquiry for a free, no-obligation chat.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in ISAs. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.