Lifetime ISA for a First Home 2026/27: The 25% Bonus and Its Rules

How the 25% Bonus Works

A Lifetime ISA (LISA) lets you save up to £4,000 per tax year, and the government adds a 25% bonus on top — paid monthly (for most providers) or annually depending on the provider.

Saving the maximum £4,000 every year from age 18 to 50 (32 years) would, in principle, attract £32,000 in bonuses over the account's contribution life — though most first-time buyers use the account for a much shorter period before buying, typically stopping contributions once they purchase.

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The £4,000 Limit Sits Inside Your Overall ISA Allowance

The overall ISA allowance for 2026/27 is £20,000, and this can be split across different ISA types (Cash ISA, Stocks & Shares ISA, Lifetime ISA, Innovative Finance ISA) in any combination — but the Lifetime ISA has its own sub-limit of £4,000 within that total.

You cannot put more than £4,000 into a Lifetime ISA in a single tax year even if you have unused overall ISA allowance remaining.

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The £450,000 Property Price Cap

This is the single biggest catch for many buyers, particularly in higher-cost areas. To use Lifetime ISA funds (including the bonus) towards a first home purchase without triggering the withdrawal penalty, the property must cost £450,000 or less.

This cap has been fixed since the scheme launched in 2017 and has not risen with house price inflation. In much of London and parts of the South East, average first-time buyer property prices now sit close to or above this cap, meaning some savers who diligently built up a LISA find they can't use it penalty-free towards their actual purchase.

If the property exceeds £450,000, using the Lifetime ISA funds towards the purchase triggers the 25% withdrawal charge — effectively cancelling out the bonus and clawing back a slice of your own contributions too.

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The Withdrawal Penalty: Why It's Worse Than Just "Losing the Bonus"

A common misconception is that withdrawing for a non-qualifying reason (not a first home under the cap, not from age 60, and not a terminal illness withdrawal) simply removes the bonus, leaving your own contributions intact. In fact, the 25% penalty applies to the entire withdrawn amount, including your own original money.

Example: You've saved £4,000 of your own money and received a £1,000 bonus, giving £5,000 in the account. If you need to withdraw the full £5,000 for a non-qualifying reason:

You've lost £250 of your own original £4,000 contribution, not just the £1,000 bonus — because 25% of £5,000 (£1,250) is more than the £1,000 bonus that was added. This is the mechanism that makes early, non-qualifying withdrawal genuinely costly, not merely "bonus-neutral."

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Lifetime ISA vs Help to Buy ISA

The Help to Buy ISA is closed to new savers (closed to new accounts since November 2019), but some buyers still hold legacy balances.

You can transfer a Help to Buy ISA balance into a Lifetime ISA, but not pay into both in the same tax year. For most current first-time buyers, the Lifetime ISA is now the only option of the two open to new savers.

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Practical Considerations Before Opening One

1. Age matters. You must open the account between 18 and 39. If you're likely to buy your first home in the near term and are close to 39, weigh up whether the bonus period will be long enough to be worthwhile versus simply saving in a standard ISA.
2. Property price trajectory. If you're saving in a high-cost area, check realistic property prices against the £450,000 cap before committing significant sums — a Stocks & Shares ISA without the cap or penalty risk may suit better if you expect to buy above that threshold.
3. Joint purchases. Each buyer can have their own Lifetime ISA — a couple buying together can combine two LISAs (up to £2,000 combined bonus a year at maximum contributions) towards the same purchase, provided both are first-time buyers.
4. Timing of withdrawal. Funds typically need to have been in the account for at least 12 months before a penalty-free property withdrawal — check with your specific provider for exact timing rules around a house purchase completion.