Lifetime ISA explained: the 25% bonus, the rules and what replaces it in 2029
How the Lifetime ISA works: the £4,000 limit and 25% bonus, using it for a first home or retirement, the withdrawal charge, the new 20% charge for homes over £450,000 and the First Time Buyer ISA coming in 2029.
In this guideShowHide
How the Lifetime ISA works
- Open it between ages 18 and 39.
- Pay in up to £4,000 each tax year, until you turn 50.
- Get a 25% bonus from the government on what you pay in, up to £1,000 a year.
- It counts towards your £20,000 overall ISA allowance.
- Choose cash or stocks and shares versions.
Using it for a first home
You can withdraw without a penalty to buy your first home if:
- The home costs £450,000 or less
- You have had the account for at least 12 months
- You are a first-time buyer
- You use a solicitor or conveyancer, who requests the money
If two first-time buyers each have a Lifetime ISA, you can both use them on the same home.
Using it for retirement
From age 60, you can take the money out for any reason, tax free. It can be a useful extra to a pension, especially for the self-employed.
The withdrawal charge
Taking money out for any other reason costs 25% of what you withdraw. Because the bonus is only 25% of what you paid in, this charge takes back the bonus and about 6% of your own money too.
Example: you pay in £4,000 and get a £1,000 bonus. Withdraw the £5,000 early and the 25% charge is £1,250, leaving you £3,750. You lose £250 of your own money.
From 29 October 2026, the charge falls to 20% if you use the money for a home that costs more than the £450,000 cap. In that case you get back what you paid in, but not the bonus.
Lifetime ISA vs pension
| Lifetime ISA | Pension | |
|---|---|---|
| Boost | 25% bonus | Tax relief, plus employer contributions at work |
| Access | First home, or from 60 | From 55 (57 from April 2028) |
| Tax on the way out | None | Usually 25% tax free, the rest taxed as income |
| Best for | First-home buyers, the self-employed | Most retirement saving, especially with an employer match |
If your employer matches pension contributions, the pension usually wins for retirement.
What is changing in 2029
The October 2026 Budget announced a new First Time Buyer ISA to replace the Lifetime ISA for new savers from April 2029. It is expected to keep the £4,000 limit and 25% bonus, but focus only on buying a home. If you already have a Lifetime ISA, you can keep using it under the current rules.
Free toolISA allowance checkerSee how much of your £20,000 ISA allowance is left before 5 April, across every type of ISA.Common questions
Is a Lifetime ISA worth it?
For first-time buyers aged 18 to 39 who expect to buy a home under £450,000, the 25% bonus is hard to beat. It is less suitable if you might need the money for something else.
Can I open a Lifetime ISA after 40?
No. You must open it before your 40th birthday, but you can keep paying in until you are 50.
When is the Lifetime ISA bonus paid?
Bonuses are usually added monthly, based on what you paid in the month before.
This is general information, not personal tax or financial advice. Tax rules change and depend on your circumstances, so check GOV.UK or speak to an accountant before acting.