Lifetime ISA explained, including FAQs

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By Beehive Money

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All about the Lifetime ISA

You’ve probably heard about a Lifetime ISA (also shortened to LISA) before or come across the name throughout our website. In this article, we’ll help you decide whether it’s right for you and your savings.

We’ve separated this guide into five handy sections and answered some of your most asked questions. You can easily jump to a section by clicking the link below.

Reviewing your savings

We always want the best for our members, which is why we recommend that you should regularly review any savings you have; either with us or elsewhere. Ensure that you're still getting competitive rates (where you aren't locked into a fixed term product) and that your accounts continue to help you reach your savings goals. 

See our full range of savings accounts, compare interest rates and find the right product for you.

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A bit about Lifetime ISAs

What is a Lifetime ISA for? arrow

Put simply, it’s a type of ISA that helps you save for a first home and/or retirement. Your money will be locked in until you meet one of those conditions but there are penalties for withdrawing before these two milestones and if you’ve had the account open for less than 12 months and you’re buying a home.

What are the things to consider? arrow

Like all types of ISA, you’ll be able to use your ISA allowance, which for the current tax year is £20,000, to put money away totally tax-free. In fact, you can save up to £4,000 per tax year into your LISA. One of the main draws of this account is the generous 25% Government bonus you can earn on your savings. So, if you put away the max £4,000, you’ll earn a £1,000 bonus on top every tax year. You’ll earn interest on any savings too. A word of warning though: if you take out the money before retirement age (60) and aren’t using it to buy your first home, there’s a 25% Government charge on your withdrawal which means you could get back less than you put in. It’s also worth knowing that you can’t use the funds for a home purchase until you’ve held the account for at least 12 months without the 25% Government charge too. This is to encourage you to save for longer periods of time.

Tax-free savings accounts are simple, really: with accounts like these you won’t have to pay tax on the interest you earn. There’s also a cap on how much you can add each tax year, depending on your circumstances, and keep in mind that the tax rules around ISAs could change.

Who can open a Lifetime ISA? arrow

UK residents aged between 18 and 39 can open a Lifetime ISA. If you’re already a homeowner, don’t worry – you can still open an account to build a retirement fund. You can keep adding money and earning Government bonuses until you turn 50.

Who is classed as a first-time buyer? arrow

It’s someone who’s never owned (or part-owned) a property before, even outside the UK. If you’ve inherited property, you won’t be classed as a first-time buyer either - sorry about that.

What if I want to withdraw money? arrow

If you take out your LISA savings for pretty much any reason other than buying your first home or retiring at age 60, you’ll likely have to pay a 25% Government charge on the withdrawal. If you’d prefer an account where you can dip in and out of your savings, you could try one of our easy access accounts instead.

Applying for a Lifetime ISA

Can I have more than one Lifetime ISA? arrow

Yes, but there isn’t really a benefit to this, because you can only pay into one each financial year (April 6th to April 5th) and the Government bonus is the same. However, the interest rate may differ between providers.

Can I have more than one type of ISA? arrow

Of course. In fact, you can open one of each ISA each year if you like! All you need to remember is that you’ll have to keep any deposits within the £20,000 ISA allowance (and any limits on the ISA itself – like the £4,000 Lifetime ISA limit).

Will it affect my benefits? arrow

A LISA is treated like any other ISA; it’s seen as an asset. So, if you have (or apply for) benefits, any savings will be taken into account when a decision is made. Likewise, if you have any debts, your savings could be used as part of debt recovery.

Will it affect my other ISAs? arrow

Your Lifetime ISA will only affect your other ISAs if you have more than £16,000 saved in other ISAs and still want to maximise your LISA savings as you can only save £4,000 into your Lifetime ISA due to the annual LISA limit. Therefore if you have £16,001 you’d only be able to save £3,999 in your LISA if you were a savings super-pro with this much to save each year.

Where can I apply for a Lifetime ISA? arrow

You can quickly and easily open an account online. Before you do, be sure to check over our key features document and all the important bits, like terms and conditions for the account. There are lots more answers to your LISA questions on this page and if you’re still unsure, you can always get in touch with our helpful customer service advisers for more info.

What details do I need to apply? arrow

You'll need your National Insurance number, an email address and mobile phone number, proof of address for the last six months and your current bank account details.

Should students get a Lifetime ISA? arrow

Students over the age of 18 are definitely able to open a Lifetime ISA and if they’re willing to not touch their Lifetime ISA savings it can be a great head start on first home savings for after university or college. Due to the 25% Government withdrawal charge it wouldn’t be advisable to open a Lifetime ISA if you were just going to withdraw your savings when you needed them as you’d get back less than you put in. Having an easy access account could be useful if you want accessible savings as a student. We offer that type of account so check them out!

Can my parents open a Lifetime ISA on my behalf? arrow

No, LISA holders have to open an account for themselves. If you are under 18 and you’re interested in saving money there may be options for you with other providers but we don’t currently offer savings accounts for under 18s at the moment.

Saving with a Lifetime ISA

Can I transfer my existing Lifetime ISA to Beehive? arrow

Yes. Full transfers from a single LISA provider are permitted for applications to our Lifetime ISA of any balance.

What could I save for my retirement? arrow

Altogether, you could save around £160,000, although to keep things simple we haven’t included any interest your savings will earn over time. To work this out, we’ve assumed: - you set your LISA up at age 18 and paid in until age 50 - you haven’t withdrawn funds for any reason (including buying a first home) - you put away the maximum £4,000 per year - the Government pays your 25% bonus, a maximum £1,000 each tax year.

What's the current interest rate? arrow

You can find out the tax-free interest rate of either the Lifetime ISA. You’ll get this on top of the Government bonus.

We will pay your interest free of UK income tax. Your tax treatment will depend on your individual circumstances and may be subject to change in the future. The tax treatment of ISAs may also change. AER stands for Annual Equivalent Rate. It shows what the interest rate would be if the interest was reinvested in the account each year. Interest rates are variable unless otherwise stated.

What happens if I change my mind? arrow

You can close your account at any time. If you close it within 30 days of opening, you won’t have to pay any withdrawal charges. Once we allow you to transfer your existing Lifetime ISA from a different provider to Beehive Money, the 30 days won’t count.

When can I open a Lifetime ISA? arrow

As long as you’ve had the account for 12 months or longer, you can take money out when you're ready to buy your first home, from the age of 60 or in case of terminal illness (we know this is a sensitive topic, so talk to us to learn more). If you take money out for pretty much any other reason, you’ll likely be charged a 25% Government fee on the withdrawal.

How much can I save in the account? arrow

You can save a maximum of £4,000 per tax year in the Lifetime ISA.

Buying a home with your Lifetime ISA

How do I buy my first home with a Lifetime ISA? arrow

Once you’ve had your account for 12 months or more, you can withdraw the funds to buy a first home, worth up to £450,000. Your conveyancer will take care of everything – and you can read all about how to use your Lifetime ISA to buy a home in our handy guide.

How does it work if I have a partner? arrow

You can each open your own LISA and will each receive the 25% Government bonus, so your money could go further. You’ll both need to meet the same requirements though, which we covered earlier. Note that you can’t have a joint LISA, which is a good thing really — you could get twice the bonuses.

What happens if my house purchase falls through? arrow

Don't worry – you can simply pop the money back. Again, your conveyancer should handle everything for you.

Using a Lifetime ISA for retirement

Is a LISA a good option for retirement? arrow

Absolutely, but of course, every person (and their financial situation) is different. We suggest a chat with a financial adviser to work out the best option for you. We partner with Wren Sterling through The Nottingham; if you’re a member of Beehive Money or The Nottingham, you might be able to book a free initial session.

Where can I find out more? arrow

You can check over our keyfacts and terms and conditions for the Lifetime ISA. Or you can take a look at the Government's website.

What if I want to retire later? arrow

You can use your LISA for retirement at age 60 and beyond. If you choose to retire later, simply leave the money there – you won’t be able to add to it but it’ll still generate interest until you withdraw.

What happens if I die? arrow

We know that death can be a sensitive topic but it’s always a good idea to think about what might happen in the future. The good news is that your LISA, complete with interest and bonuses, will be passed on to beneficiaries if you do pass away.

Who's the best LISA provider? arrow

It’s really up to you to make that choice but there are lots of good reasons to choose Beehive. We’re open and honest about all the ins and outs of finance; we make money easy to manage with our handy app; and we offer all the help, advice and information you could ever need through our help centre and Customer Advocates. It’s no wonder our members like to shout about us!

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