The Lifetime ISA – £1,000 on offer from the government

Lifetime ISA

It’s not often that the UK government hands out free cash.

Yet, that’s exactly what it’s doing for those who own and contribute to the new ‘Lifetime ISA.’

Here’s a brief look at how this new ISA works.

Lifetime ISA

Launched last year, the Lifetime ISA has been designed to help young people save for either their first house, retirement, or both. The savings vehicle is only open to 18-39 year olds.

The account allows contributions of up to £4,000 per year, up to age 50. Any contribution into this ISA will count towards the overall £20,000 ISA annual allowance. The ISA can hold cash or stocks/funds or a combination of both.

The key benefit of the account is that for every pound contributed to the ISA, up to £4,000 per year, the government will throw in a 25% bonus.

In other words, if you pay in £4,000, you’ll receive a bonus of £1,000.

The deadline to make a contribution for 2017/2018 is midnight on 5 April.

Those who make the deadline will apparently receive their bonus in April.

Sounds pretty good, right?

Is there a catch?

Of course there is.

The catch

The catch here is that funds placed within a Lifetime ISA must remain in the ISA until either a first property is purchased (there are quite a few conditions here), or until the account holder turns 60.

Any withdrawal before this will be stung with a 25% charge, meaning the investor could potentially get back less than they put in.

Worth it?

The Lifetime ISA will suit some individuals more than others. It’s definitely worth spending some time thinking about the pros and cons of the account before opening one.

For those using it as a retirement savings vehicle, as opposed to using it for a house deposit, the fact that the funds cannot be accessed until 60 does take away some flexibility. If you’re planning to retire early and want access to your capital, this ISA may not be for you.

However, for some, it has the potential to be an excellent long-term savings vehicle, in my opinion, thanks to the generous bonuses from the government. For example, if you’re within the 18-39 age bracket, self-employed, and receive no company pension, then it could definitely be worth considering as a savings vehicle.

Overall, it’s a generous scheme from the government. An 18 year-old who contributes £4,000 per year every year, up to age 50, could potentially pocket £33,000 over time. That bonus could really put a rocket under their retirement pot.

Personally, I opened a Lifetime ISA over the weekend and contributed the full £4,000 into the account. I look forward to receiving my £1,000 bonus in April.


This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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