Updated: February 07, 2020

How to Use a Lifetime ISA

Lifetime ISAs can be a great option for retirement savings and saving to buy a property. Find out how to get the most out of yours in our guide

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: February 07, 2020

Lifetime ISAs (LISAs) are not only a tax-efficient account to save your money, but you can also benefit from a 25% bonus on top of what you save. While there are plenty of benefits to using a Lifetime ISA, there are specific rules when it comes to using a Lifetime ISA that you should be aware of before applying for one.

In this article, we take a look at what you can use your LISA funds for and how to approach each situation in the right way to avoid any potential charges.

How do I use a Lifetime ISA?

You can use it to save up money that you plan to use to purchase your first home or build up for your retirement. The rules for how you use a LISA will be different depending on what you’re saving for. Regardless, you can still put away £4,000 each year and receive a 25% tax-free bonus from the government – that’s a free £25 for every £100 you save.

While the LISA is designed for first-time buyers and those saving for retirement, you may be hit with some hefty charges if you go about withdrawing your money in the wrong way. Not only would you lose your 25% bonus, but you’d also get hit with a 25% early withdrawal charge, so you’d walk away with less than you’d put in.

To find out how you can access and use your funds in the correct manner, see our sections below.

Buying your first home

To use a Lifetime ISA to buy your first home with, the property must be worth less than £450,000. You must be a UK resident who has never owned a property before, even if you inherited a house and sold it on. If you’re buying with a partner who also has a LISA, you can combine them to put down a larger deposit.

Be aware that you shouldn’t withdraw the funds in your Lifetime ISA yourself – your savings should stay in the account until your solicitor or conveyancer requests them.

In order to use your Lifetime ISA funds without triggering the 25% early withdrawal charge, you’ll likely have to take the following steps:

  • Find out how much you could afford to borrow from a mortgage provider
  • Request an Agreement in Principle
  • Find a property to purchase and show proof of your Agreement in Principle to the estate agent
  • You can now request to release the money from your LISA
  • Fill out an Investor Declaration form and give it to your conveyancer
  • Your conveyancer will then complete and Conveyancer Declaration form and submit the documentation to your mortgage provider
  • After your mortgage provider receives your paperwork, they will send you a confirmation form. Once you sign and return it, your LISA funds will be released to your conveyancer.
  • Your conveyancer then has 90 days to complete the purchase of your property. They can request an extension if they need it.
  • If the sale falls through, they must send your money back to the mortgage provider, who will deposit it back into your account.

An experienced and quality conveyancer will ensure that this process is performed as efficiently as possible. You could also work with an independent mortgage broker who can find you the best mortgage deals to match your circumstances.

Income for retirement

Once you turn 60, you can access your LISA funds without any penalties or fees. You can open a Lifetime ISA from the ages of 18-39, save into it and receive the 25% bonus until you reach 50. For the next 10 years, your funds will generate interest. If you make a withdrawal before 60, you’ll pay an early withdrawal charge.

A Lifetime ISA isn’t designed to be a replacement for a workplace pension or even a personal pension, but rather an additional savings vehicle to boost your income for retirement.

Terminal illness

If you are diagnosed with a terminal illness and have less than 12 months left to live, you can access your money without facing any charges or losing the 25% government bonus. To do this, you will need to supply your Lifetime ISA provider with written evidence from a doctor, who will then grant early access to your funds.

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How do I apply for a Lifetime ISA?

You can apply for a LISA if you are a UK resident and aged between 18-39. Depending on the provider you go with, you can fill out an application form online, in a branch, in the post, or over the phone. You can also apply to transfer funds from one ISA into a Lifetime ISA.

You can only apply and open one Lifetime ISA in each tax year, and you can also pay into one during each tax year.

Bear in mind that while there are many Lifetime ISAs available online, you could find a better deal by working with a financial advisor.

Speak to an expert

To find out if a Lifetime ISA is right for you and which providers offer the best accounts for your needs, make an enquiry or call 0808 189 0463.

We’ll then put you in touch with an experienced financial advisor who is regulated by the Financial Conduct Authority (FCA) to ensure that you receive the best advice possible.

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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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Richard Angliss

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 are fully qualified to provide mortgage advice and work only for firms that 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.

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