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Aged 18-40? Explore the Lifetime ISA

If you’re between 18 and 40, you can use a Lifetime ISA, also known as a LISA, to help buy your first home or, if you’re already a homeowner, as it's another way to save towards your retirement.

 Though Lifetime ISAs are available, please be aware that Aviva does not currently offer one.

Why the Lifetime ISA is different

Home buying and planning for retirement are two of life’s major challenges for people of all ages. But it’s a particularly tough financial environment for young adults caught between a rock and a hard place while trying to get themselves onto the property ladder and also needing to consider saving for their retirement, all at the same time. The Government has recognised this and has addressed the issue with Lifetime ISAs which offer a bonus of 25% added to the amount saved. Of course, there are strict terms and conditions applied and it is essential to know exactly what is at stake.

How much you can save  

You can save up to £4,000 a year in a Lifetime ISA up to your 50th birthday. You’ll receive a government bonus of 25% on your contributions. For every £4,000 saved, that’s a bonus of £1,000. You can invest in either a cash, or stocks and shares ISA and can save it as a lump sum or make regular payments. The main condition is that you can only use the proceeds in one of two ways: buying your first home, or to help fund your retirement.

How homebuyers can use the money   

For homebuyers, it must be used for your first-ever purchase of a home worth £450,000 or less.  If two of you are first time buyers and saving in Lifetime ISAs, both sets of savings can be used. The money is passed to the solicitor and used at the exchange stage of the buying process.  The Lifetime ISA will need to be open for a year or more in order to use it to buy a home.

Things to bear in mind if you are saving for a house

  • The effect of inflation on house prices will impact the amount you need to save for a deposit.
  • If your Lifetime ISA savings don't provide you with enough of a deposit for a house purchase, your money could be tied up until age 60.
  • It’s important to choose investments that are appropriate for targeting your house purchase i.e. short-term investments.

Retirement income from age 60

The Lifetime ISA is another way to help you save towards your retirement. You can take your savings out of the account once you reach your 60th birthday. From this date, money can be withdrawn at any time, so it’s there just when you need it. Of course there are many more ways to save towards retirement and so the Lifetime ISA can be used in addition to any pensions you might already have.

Things to bear in mind if you are saving for retirement

  • If you opt-out of a workplace pension you’ll miss out on contributions from your employer.
  • Contributions you make into a pension benefit from tax relief and for higher and additional rate taxpayers in particular, a pension is more tax efficient.
  • Workplace pensions have additional governance structures in place which includes a cap on charges. The charges under a Lifetime ISA may be more than this.
  • It’s important to choose investments that are appropriate for targeting your retirement i.e. long-term investments.


If you make a withdrawal before your 60th birthday

Because the Lifetime ISA is only designed for the specific savings goals detailed above, if you aren’t using your savings to buy your first home and you withdraw your savings before your 60th birthday you’ll be charged for your withdrawal.  Only in the face of certain life events, such as a terminal illness diagnosis, can money be withdrawn for a different use.

With the exception of terminal illness, you’ll be charged 25% of the gross amount you withdraw. This doesn’t just remove the 25% bonus, but also applies an additional penalty. For example, you pay in a lump sum of £2,000 and receive a bonus of £500 giving you a total of £2,500. If you then want to withdraw £2,500 the government will take 25% of this as a penalty, meaning they take £625. This leaves you with £1,875, which is less than you originally paid in. 

What are the risks?

If you choose to open a Lifetime ISA you can invest in stocks or shares or in cash. As with all stock market investments, if you decide to open a stocks and shares Lifetime ISA your investment can go down as well as up, so you could get back less than you invest.

Where the Lifetime ISA fits with current ISAs

You’ll be able to hold a Lifetime ISA as well as a standard ISA, although the total amount you can save in combined ISAs each tax year is subject to the maximum annual ISA allowance. For 2019/20 the ISA allowance is £20,000.

You can hold more than one Lifetime ISA, but you may only pay into one of the ISAs during a tax year. You can transfer between different Lifetime ISA providers at any time.

If you already hold a Help to Buy ISA, you can transfer the funds into a Lifetime ISA. You can only use the bonus from one ISA towards buying the property.

Is a Lifetime ISA for you?

  • If you are unsure if a Lifetime ISA is right for you, you may want to seek financial advice. Visit www.aviva.co.uk/advice or call 0800 151 0673 where our financial advice support team can help put you in touch with a financial adviser. Alternatively, your employer may have a financial adviser you can speak to.
  • You can find more information about Lifetime ISAs here.


    GN20801        04/2019

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