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📍 Quick Answer — TL;DR
A Lifetime ISA (LISA) is a government savings account for UK adults aged 18–39. You can deposit up to £4,000 per year and the government automatically adds a 25% bonus — worth up to £1,000 per tax year in free cash. Use the money to buy your first home (up to £450,000) or withdraw it tax-free from age 60 for retirement. Top Cash LISA rates currently sit at 4.70% AER (Moneybox) and 4.60% AER (Plum).
⚠️ Critical rule: If you withdraw for any other reason, the government applies a 25% penalty on the entire pot — meaning you lose some of your own original money, not just the bonus.
📋 IN THIS GUIDE
Lifetime ISAs Explained: £1,000 Bonus, 2026/27 Rates & Best Providers
A Lifetime ISA (LISA) gives you something genuinely rare in personal finance: free government money. Deposit £4,000 a year and HMRC automatically hands you £1,000 — every single year — either to help you buy your first home or build a tax-free retirement pot.
But the rules are strict and the withdrawal penalty is uniquely punishing. Below, we explain exactly how the bonus works, compare the best 2026 providers, and help you decide whether a LISA or a pension is the smarter move for retirement.
⚠️ TWO THINGS EVERY PROSPECTIVE LISA HOLDER MUST KNOW IN 2026
🏠 The £450,000 cap was NOT raised in 2026
Despite lobbying in 2025 and 2026, HMRC has refused to raise the property limit. If your home costs £450,001 — even £1 over — you will forfeit the entire government bonus plus lose some of your own cash to the 25% penalty. London and South East buyers must think carefully.
🚀 January 2026: A new first-home savings product is coming — but NOT yet
HMRC confirmed plans for a new product launching around April 2028 that removes the 25% penalty. Do not wait. Open a LISA today to start the 12-month countdown and collect up to £3,000 in bonuses before the new product arrives.
The Only Savings Account That Gives You Free Government Cash
Introduced in 2017, the Lifetime ISA (LISA) has a singular, powerful hook: the government hands you 25p for every £1 you save, up to £1,000 per year in free cash. It is a dual-purpose vehicle — engineered for a first home deposit or a tax-free retirement pot — and it is the most generous savings incentive the UK government currently offers.
Who can open a LISA?
Aged 18 to 39
You must open your LISA before your 40th birthday. Once open, you can continue contributing and earning the 25% bonus until the day before you turn 50.
UK resident (or Crown servant)
You must be a UK resident for tax purposes. Crown servants posted abroad also qualify under the same rules as other ISAs.
First-time buyer or retirement saver
You do not need to specify your purpose when opening. You decide later whether to use it for property or retirement — or both, if your plans change.
⚠️ Missed the 40th birthday window? If you are 40 or over, you cannot open a new LISA. However, a Cash ISA at up to 4.40% AER or a Stocks & Shares ISA remain powerful tax-free tools. See our Over-60s guide for retirement-focused alternatives.
Two purposes, one account
💡 Key insight: compound bonus growth
The government bonus is paid monthly, 4–10 weeks after your deposit. That means your bonus immediately starts earning interest or investment returns inside the ISA wrapper — accelerating compound growth from day one.
The Bonus Mechanics — Exactly How the 25% Works
Understanding how the LISA bonus is calculated, paid, and what happens if you need to access the money is essential before opening an account. The upside is exceptional. The downside penalty is unusually harsh.
The £4,000 Annual Limit
You can deposit a maximum of £4,000 per tax year into your LISA. Importantly, this counts toward your overall £20,000 annual ISA allowance — it is not in addition to it. After maxing your LISA, you have £16,000 left to split across a Cash ISA or Stocks & Shares ISA.
Bonus Paid Monthly by HMRC
The 25% bonus is paid directly into your account by HMRC on a monthly basis — typically 4 to 10 weeks after each deposit. You do not need to claim it or fill in any paperwork. Your provider handles everything automatically.
✅ Compound advantage: As soon as the bonus lands, it starts earning interest or investment returns inside the tax wrapper — compounding immediately.
2027 Cash Cap: LISA is Exempt
From April 2027, the government will restrict Cash ISA deposits to £12,000/year for under-65s. However, your £4,000 LISA allowance remains entirely separate — you can still max it out alongside the new £12,000 Cash ISA limit.
💜 BONUS CALCULATOR — TAX YEAR 2026/27
Plus: interest/investment growth on the full £5,000 pot
⚠️ THE PENALTY BITE — WORKED EXAMPLE
The 25% penalty applies to the total pot (your money + the bonus), not just the bonus. This means you lose some of your own original savings:
⚠️ Net result: you lost £62.50 of your own money
First-Time Buyer LISA: Rules You Must Know Before You Buy
For first-time buyers, the LISA is the most powerful deposit-building tool available. But the rules governing how and when you can use it are strict — get any of them wrong and you could lose money rather than gain it.
RULE 1 — PROPERTY PRICE LIMIT
The Property Must Cost £450,000 or Less
You can only use your LISA — and keep the government bonus — if the property you're buying costs £450,000 or less. It must be purchased with a repayment mortgage and used as your primary residence. Buy-to-let properties do not qualify.
✅ Qualifies
Any UK property at £450,000 or below, with a mortgage, as primary residence
❌ Does NOT qualify
Properties above £450,000; buy-to-let; cash purchases; second homes
⚠️ London & South East warning: The £450k cap has not been raised since 2017 despite years of lobbying. Average starter homes in many London boroughs exceed this limit. If there is any chance your target property will breach £450,001, model the penalty cost before committing to a LISA strategy.
RULE 2 — THE 12-MONTH CLOCK
Your LISA Must Be Open 12 Months Before You Buy
You cannot use your LISA for a property purchase until the account has been open and funded for a minimum of 12 calendar months from your first payment. The clock starts the moment you make your first deposit — not when you open the account.
✅ Pro-tip: Open one today with just £1
Even if you are years away from buying, opening a LISA now with a £1 deposit starts the 12-month countdown immediately. You can build your savings gradually afterwards. Every week you wait is a week added to the minimum waiting period before you can complete a purchase.
RULE 3 — THE PURCHASE PROCESS
How to Actually Use Your LISA to Buy
You cannot withdraw the money to your current account yourself. Your conveyancer (solicitor) requests the funds directly from your LISA provider on your behalf during the purchase process. The funds transfer goes straight from provider to conveyancer — you never touch it. Inform your solicitor you hold a LISA as early as possible in the purchase process.
JANUARY 2026 HMRC UPDATE
A New First-Home Savings Product Is Coming — But Not Until 2028
In January 2026, HMRC confirmed plans to consult on a new first-time buyer savings product expected to launch around April 2028. The key improvement: it would pay the bonus only at the point of purchase, completely removing the 25% withdrawal penalty for people whose plans change.
Should you wait until 2028? No.
HMRC has explicitly confirmed nothing changes right now. Waiting costs you up to £3,000 in free bonuses over the next three tax years, plus all the compound interest on those bonuses. Open your LISA today and switch or transfer when the new product arrives if it suits you better.
Using a LISA for Retirement: LISA vs. Pension Compared
A LISA is particularly powerful for the self-employed who miss out on employer pension contributions. But before redirecting money away from a pension, you need to understand exactly when the LISA wins — and when it loses.
Tax-Free at 60 — Everything
From your 60th birthday, you can withdraw the entire LISA pot — your contributions, every penny of government bonus, and decades of accumulated growth — 100% tax-free. There is no income tax, no CGT, and no means-testing. You receive everything.
Compare this to a pension, where only the first 25% is tax-free — the rest is taxed as income at your prevailing rate when you draw it down.
For later-life planning including pension options, see our Over-60s ISA & Retirement Savings guide →
Lifetime bonus potential — the long view
Before investment growth. Assumes maximum £4,000/year contribution from age 18 to 50.
LISA vs. Pension: Which wins for retirement?
✅ Choose LISA for retirement if:
You are self-employed (no employer match), a basic-rate taxpayer, or want a fully tax-free withdrawal at 60. The 25% bonus matches basic-rate pension relief, but ISA withdrawals are completely tax-free.
📍 Choose Pension first if:
Your employer matches contributions (a 100% instant return beats a 25% bonus), or you are a higher/additional-rate taxpayer claiming 40%–45% relief. Always collect the full employer match before any other retirement saving.
Best Cash Lifetime ISAs — Live Rates February 2026
A Cash LISA is the safest choice if you plan to buy a property within 5 years. Your capital is protected, interest is tax-free, and the 25% bonus arrives monthly. Rates shown include the government bonus on top.
⚠️ Rates correct as of February 2026. Interest rates are variable and subject to change. Always check the current rate on the provider's website before opening an account. Watch for introductory bonus rates that drop after 12 months.
Best Stocks & Shares LISAs — February 2026
If you are saving for retirement 10 or more years away, a Stocks & Shares LISA can deliver significantly higher long-term returns than cash — helping the government bonus compound against inflation. Minimising platform fees is your top priority.
⚠️ Capital at risk. Unlike a Cash LISA, the value of a Stocks & Shares LISA can fall as well as rise. Only choose this option if you have a 5+ year time horizon and can withstand short-term volatility. If you plan to buy a home within 5 years, a Cash LISA is generally safer.
Lifetime ISA FAQs
Six of the most searched questions about Lifetime ISAs — answered clearly for 2026/27, optimised for Google's AI Overviews and featured snippets.
Can I have a Help to Buy ISA and a Lifetime ISA at the same time?
Can I have a Help to Buy ISA and a Lifetime ISA at the same time?
Yes — you can hold both accounts simultaneously. However, you can only use the government bonus from one of them when buying your first home. You cannot combine both bonuses for a single property purchase.
💜 Why most savers transfer to a LISA:
The Help to Buy ISA caps contributions at £200/month (£2,400/year), yielding a maximum £600 government bonus. The LISA allows £4,000/year, yielding up to £1,000 in bonuses — 67% more free government cash annually. Transferring your H2B balance into a LISA is usually the smarter move. Use the official ISA Transfer process — never withdraw the cash manually.
Note: If your Help to Buy ISA has a significant balance, check with your provider how a transfer affects any interest already earned before initiating the transfer.
What happens if I buy a house with a partner?
What happens if I buy a house with a partner?
If you are buying with a partner who is also a first-time buyer, you can both use your own individual LISAs toward the same property purchase — doubling the benefit.
✅ Combined couple example (per year):
Person A deposits £4,000 → receives £1,000 bonus
Person B deposits £4,000 → receives £1,000 bonus
Combined pot growth: £10,000/year (£8k savings + £2k free government cash)
The £450,000 property limit applies to the total purchase price of the home — not each person's individual share. If the property costs £450,001, neither party can use their LISA bonus for that purchase.
⚠️ Only first-time buyers qualify. If one partner has previously owned property (anywhere in the world), they cannot use a LISA for the purchase. The other partner may still be eligible to use theirs individually — seek specific advice for mixed-ownership situations.
Does a LISA count towards my FSCS protection limit?
Does a LISA count towards my FSCS protection limit?
Yes — but the coverage limit differs depending on which type of LISA you hold:
✅ Cash LISA — FSCS covers up to £120,000 per person, per authorised banking institution (updated from £85,000 in December 2025). Your LISA balance and any other cash held with the same banking licence pool together toward this limit. See our Cash ISA guide for the full £120k FSCS explanation.
📍 Stocks & Shares LISA — FSCS covers up to £85,000 per authorised investment firm if your assets go missing due to platform failure or fraud. This does not cover market falls — market risk is always present when investing.
Can I transfer my Cash LISA to a Stocks & Shares LISA?
Can I transfer my Cash LISA to a Stocks & Shares LISA?
Yes. You can transfer between LISA providers — and switch between Cash and Stocks & Shares — without triggering the 25% withdrawal penalty, as long as you use the official ISA Transfer process.
✅ The correct transfer process:
1. Open an account with your new provider
2. Complete their ISA Transfer form (not a standard deposit)
3. They contact your old provider directly and move the funds
4. All bonuses, interest and government contributions are preserved intact
⚠️ Never withdraw the money to your bank account before moving it to a new provider. This is treated as a non-qualifying withdrawal and triggers the 25% penalty — you lose some of your own money.
What happens to my LISA if I die?
What happens to my LISA if I die?
If you pass away, your Lifetime ISA forms part of your estate. The 25% withdrawal penalty is entirely waived — death is one of the few circumstances where the penalty does not apply.
✅ What your beneficiaries receive: Your full original contributions + all accumulated government bonuses + all interest or investment growth to the date of death. Nothing is deducted. The full pot is passed to your estate and distributed according to your will, or intestacy rules if no will exists.
For broader later-life and estate planning considerations, see our Over-60s ISA & Retirement Savings guide →
What is the best Cash LISA rate in 2026?
What is the best Cash LISA rate in 2026?
As of February 2026, the market-leading Cash LISA rates are:
⚠️ Rate disclaimer: All rates are variable and can change at any time. Always verify current rates directly on each provider's website before opening an account. Introductory bonus rates (like Moneybox's) revert after the promotional period.
Every Type of ISA — Explained
The full TaxYZ ISA guide series — covering every wrapper, every rule, and every 2026/27 update you need to know.
PARENT GUIDE
ISAs in the UK — Full Hub
Every ISA type, every 2026/27 rule, every allowance in one place.
TOP RATES
Cash ISAs — 4.40% AER
Tax-free easy-access savings. £120k FSCS protection.
0% TAX ON GAINS
Stocks & Shares ISAs
Zero CGT. Zero dividend tax. Full platform fee comparison.
FOR CHILDREN
Junior ISAs — £9,000/year
Tax-free savings for under-18s. Locked until 18th birthday.
FULL RULES
ISA Allowances & Rules
Every limit, deadline and the 2027 Cash ISA cap explained in full.
RETIREMENT PLANNING
Over-60s ISA & Retirement Savings
Pension vs ISA at retirement. Over-65s keep the full £20k ISA allowance.
Claim Your £1,000 Government Bonus — Every Year You Delay Costs You
Every tax year you don't open a Lifetime ISA is a year without a free £1,000 from the government. The 12-month countdown only starts when you make your first deposit. If you're under 40, there is no rational reason to wait — open with £1 today and decide later.
TaxYZ provides educational information only and is not regulated by the FCA. Interest rates and platform fees are correct as of February 2026 and are subject to change. The value of investments can fall as well as rise. The 25% Lifetime ISA government withdrawal penalty applies to all non-qualifying withdrawals. Always read the Key Information Document before opening any savings account.