How does the Lifetime ISA work for a first home purchase?

Full answer

The Lifetime ISA (LISA) is a government-backed savings account for those aged 18–39, designed to help with either a first home purchase or retirement saving. **Annual allowance and bonus** - Maximum contribution: £4,000 per tax year - Government bonus: 25% of contributions, paid monthly — maximum £1,000 per year - Bonus is paid into the LISA and can itself earn interest or investment returns **Using a LISA to buy a first home** To make a qualifying withdrawal for property purchase: 1. The LISA must have been open for at least **12 months** before the purchase completes 2. You must be a **first-time buyer** (never owned a home in the UK or abroad) 3. The property must cost **£450,000 or less** 4. You must be using a **repayment mortgage** (not a buy-to-let mortgage) 5. You must be buying with a UK-registered conveyancer The LISA funds (including the bonus) are paid directly to the conveyancer at completion. **Withdrawal penalty for other purposes** If you withdraw LISA funds before age 60 for any reason other than a qualifying first home purchase or terminal illness, HMRC charges a **25% penalty** on the full withdrawal amount. Because the bonus is 25% of contributions, the penalty effectively claws back the entire government bonus AND takes a slice of your own savings: depositing £4,000 and withdrawing without qualifying returns £3,000 (25% penalty on £4,000 + £1,000 bonus = £1,250 penalty; net £3,750). **Stocks and shares LISA** You can invest your LISA in equities for potentially higher returns, accepting investment risk. This can be more suitable if you are saving over a long period and are comfortable with the possibility of losses. **Interactions with Help to Buy ISA** You can transfer a Help to Buy ISA balance into a Lifetime ISA but only one LISA bonus can be used per property purchase. You cannot use a Help to Buy ISA and a LISA bonus for the same purchase.