Savers aged between 18 and 40 can choose to open a Lifetime ISA (“LISA”). LISAs are designed to help young people to save not only for a first home, but also for their retirement, without being forced to prioritise one over the other”.
Up to £4,000 of your annual ISA allowance (£20,000 for the tax year 2023/24) can be saved into a LISA each year by savers aged between 18 and 50. LISA savers will receive a 25% annual government top-up to a maximum of £1,000 per year. LISA savings may be used towards a deposit on a first home worth up to £450,000, or saved until the age of 60 to fund retirement. LISAs are limited to one per person rather than one per household; two first-time buyers will therefore both receive the government bonus when they buy a home together.
However, if you make any withdrawals made before the age of 60 that are not for the purpose of buying a first home you will pay a 25% withdrawal penalty on the full amount withdrawn – so accessing your money early could prove expensive.
Above all, you should not assume that a LISA is a substitute for a pension scheme. Pension contributions enjoy significant tax breaks; moreover, employees benefit from their employer’s contributions to their workplace pension scheme. Therefore, it’s important to take expert advice before making any far-reaching decisions.
