Lifetime ISA: Martin Lewis breaks down the rules and what options are available

Lifetime ISAs are a popular option for savers who are aiming to purchase their first home. The Lifetime ISA scheme was launched in 2017 and it was designed to replace the help to buy ISA scheme, which is now closed. Lifetime ISAs offer great benefits but they do have rules in place. The bonus awarded through the ISA can only be used for houses up to £450,000 and it must be the person’s first residential home.


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The Lifetime ISA will provide a bonus of 25 percent on everything put inside the account.

However, this will only happen up until age 50 and there will also be a 25 percent penalty on any withdrawals made.

If withdrawals occur for anything other than a home or retirement, Martin Lewis details that for every £100 put in, only £93.75 will be given back.

Because of this, only money that the individual knows will be used for a qualifying home or retirement should be put in.

Martin was on This Morning today to discuss some of these Lifetime ISA rules and what people should be aware of as we approach the end of the tax year.

He started by confirming who can and can’t open an account, when asked if it is available for anyone he clarified: “No, that’s the rub, you must be aged between 18 and 40 to open it.

“If you’ve had your 40th birthday already, you’ve missed out, but open it before you’re 40 and you can keep it after.

“The bonus is then paid until you’re 50. So open at 18, and get the full 32 years of the maximum bonus and that’s £32,000 free (assuming the rules don’t change).

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“Plus, there’s a rule that says to use the bonus for a home, you need to have had it open for at least a year.

“So, putting at least £1 in there now gets the clock ticking on that year, so that if and when you do have money to put in it, and want to buy a house quickly, you’re ready to go. Of course, if you can save more, then do.”

He went on to detail where the best Lifetime ISAs can be found: “There are two types of LISAs. Cash LISA and Stocks and Shares LISA.

“There aren’t many top cash LISAs to choose from, as not many providers offer them, but top is app-based MoneyBox which pays 1.4 percent AER (your cash is actually saved with OakNorth Bank) and then it’s Nottingham BS paying 1.25 percent AER.”


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“Stock and Shares LISA providers include Hargreaves Lansdown, AJ Bell YouInvest and Nutmeg – though remember with these you’re taking a risk and these are far less suitable for most short time buyers who won’t want the money in for that long.”

While Martin confirms that it is too late for some people, there are still options for those who have missed out. As he details: “If you opened a Help to Buy ISA before they closed for new applications in November last year, you can keep saving in it till Nov 2029 and use it for the 25 percent house bonus till December 2030.

“If not it’s a question of just putting your money in the best savings accounts. For regular saving you can put up to £500/month in the Coventry Building Society regular saver earning 2.5 percent AER. Or, for lumps with easy access there’s Marcus and Saga at 1.3 percent AER.

Martin moved on to the question of whether Lifetime ISAs are better than pensions for retirement savings: “That’s a complex question, but for most people, no. While unlike pensions it does allow early withdrawals (for a penalty) in most cases a pension gives you more.

“This is because with a pension, you usually save from gross (pre-tax) income – which for basic-rate taxpayers is a bit like a 25 percent boost in its own right, the same as a Lifetime ISA. For higher-rate taxpayers, it’s like a 66 percent boost, which smashes the Lifetime ISA.

“Plus, if you’re employed, the auto-enrolment scheme means that if you save into your pension then your employer has to as well, which you don’t get from the Lifetime ISA.

“So in simple terms the only time the Lifetime ISA even matches pensions is for basic-rate taxpayers who are self-employed.

“Even then, the Lifetime ISA, unlike a pension, counts as savings, so it can diminish your benefit entitlement.

“Therefore, for most people the Lifetime ISA should only be used at best as a secondary way to save for retirement.”

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