Deposit goal & Lifetime ISA
A Lifetime ISA adds a 25% government bonus to your first-home saving, up to £1,000 a year. This shows how fast the bonus gets you to your deposit, and warns about the penalty if you ever withdraw the money for another purpose.
Withdrawal warning. Take money out of a Lifetime ISA for anything other than a first home, age 60, or terminal illness, and a 25% charge applies to the whole pot, not just the bonus. On a £1,000 pot that is a £250 charge, leaving £750. You end up with less than you put in. Only use a LISA for money you are sure is going toward a first home or retirement.
How the bonus builds your deposit
Every pound you pay in, up to £4,000 a tax year, earns a 25p bonus paid by the government. The bonus is added monthly, so it compounds slightly if the account also earns interest or investment growth. The hard cap is £1,000 of bonus per year, so paying in more than £4,000 in one tax year does nothing extra. To collect the full bonus you need to fund it across several tax years, not in one lump.
The saver above reaches the deposit faster than plain saving because roughly a fifth of the target arrives as a government bonus. The trade-off is the rigidity: the £450,000 price cap and the withdrawal charge mean it only suits a genuine first-home plan.
Worked example
Starting with £2,000 and paying in £340 a month towards a £40,000 deposit, you contribute £32,600 of your own money and receive £7,510 in bonus, reaching the goal in about 7 years 6 months. Saving the same amount each month in a normal account, with no bonus, would take 9 years 4 months.
Common questions
How much is the Lifetime ISA bonus?
The government adds 25% to what you pay in, up to £4,000 of contributions per tax year. That is a maximum bonus of £1,000 a year. Pay in £4,000 and you get £1,000 on top. Contributions above £4,000 in a year earn no further bonus.
What is the house price limit?
The Lifetime ISA can only be used to buy a first home worth up to £450,000. Buy above that and you lose the bonus and pay the withdrawal charge. The cap is the same across the whole UK, including London, and has not risen with house prices.
What is the 25% withdrawal penalty?
If you take the money out for anything other than a first home, reaching age 60, or terminal illness, a 25% charge is applied to the whole pot, not just the bonus. Because the bonus was 25% up and the charge is 25% of the grossed-up total, you lose about 6.25% of your own money on top of the bonus. Only save what you are confident you will use for a first home or retirement.
Who can open a Lifetime ISA?
You must be aged 18 to 39 to open one. You can keep paying in and earning the bonus until you turn 50. To use it for a first home you must have held the account for at least 12 months before the purchase.
Can two first-time buyers both use a LISA?
Yes. If you buy together and both are first-time buyers, you can each use your own Lifetime ISA and each get the bonus, as long as the property is within the £450,000 cap. That doubles the effective bonus towards the same deposit.