What is the Lifetime ISA (LISA)?
The Lifetime ISA gives 18–39-year-olds a 25% government bonus on up to £4,000 saved a year — for a first home under £450,000 or for retirement — but a 25% penalty claws back more than the bonus on other withdrawals.
How it works
Open one between 18 and 39; save up to £4,000 a year (inside your £20,000 ISA allowance) and the government adds 25% — up to £1,000 a year — until you're 50. Withdraw penalty-free for a first home costing up to £450,000 (after 12 months), or from age 60. Anything else triggers a 25% charge on the whole withdrawal — which mathematically takes back the bonus plus about 6.25% of your own money.
The £450,000 trap
The house-price cap has never risen since 2017 while prices have — LISA savers in London and the South East increasingly find their target home over the cap, leaving their own savings hostage to the exit penalty. Reform of the cap and the penalty (to 20%, making it bonus-neutral) is perennial Budget speculation and a live Treasury Committee recommendation — track it on our Budget watch.
Why it matters now
The LISA sits exactly where housing politics meets savings politics: it's the state's main deposit subsidy while parties argue about stamp duty and the First Job Bonus (which would effectively create a rival NI-funded deposit scheme). For most young savers the order of operations is: employer pension match first, LISA second, ordinary ISA third — see the first-time buyer comparison for the policy landscape around it.
Plain-English guide for general information only — not financial, legal or tax advice. Rates are 2025/26 unless stated. Last reviewed 5 July 2026.
Frequently asked questions
How does the Lifetime ISA bonus work?
Save up to £4,000 a tax year between 18 and 50 (opened before 40) and the government adds 25% — up to £1,000 a year. Used for a first home under £450,000 or after age 60, it's the best risk-free return in UK saving.
What is the LISA withdrawal penalty?
25% of the amount withdrawn for any non-qualifying reason — which takes back the government bonus plus roughly 6.25% of your own contributions. It's the scheme's sharpest edge.
Can I use a LISA for a house over £450,000?
No — exceed the cap and the purchase doesn't qualify, so withdrawing your deposit costs the 25% penalty. The cap hasn't moved since 2017 despite price growth, which is why reform is regularly urged on the Treasury.