What is a Lifetime ISA and who should use one?

Full answer

A Lifetime ISA is a specific type of ISA designed to help younger adults save toward two particular goals: buying their first home, or building a retirement fund. It can only be opened by someone aged 18 to 39, though once opened, contributions can continue to be made up until the saver's 50th birthday, and the Government adds a 25% bonus on top of everything paid in, up to a maximum bonus of £1,000 a year on the maximum £4,000 annual contribution, paid monthly or annually depending on the specific provider. Money can be withdrawn completely bonus-and-penalty-free in two circumstances: to buy a first home worth up to £450,000 (provided the saver has held the account for at least 12 months before using it), or from age 60 onwards for any purpose, effectively functioning as a retirement savings vehicle at that point. If money is withdrawn for any other reason -- an emergency, a change of plans, or buying a home above the £450,000 price cap -- a 25% Government withdrawal charge applies to the whole amount withdrawn (not just the bonus portion), which works out as a real financial penalty, since withdrawing £1,000 that includes a £200 Government bonus results in only £950 being returned to the saver after the 25% charge, a net loss on their own original contribution, not just clawback of the bonus. This makes the Lifetime ISA most suitable for people who are confident about either genuinely saving toward a first home purchase within the relevant price cap, or who are happy to lock the money away until at least age 60 for retirement, rather than as a general-purpose flexible savings account, given the significant penalty for early access outside these two specific purposes.