Lifetime ISA Calculator
A Lifetime ISA (LISA) is a tax-free savings or investment account where the government adds a 25% bonus on top of whatever you personally pay in, up to an annual contribution limit of £4,000 — meaning a maximum bonus of £1,000 per year if you contribute the full amount. The bonus is paid monthly, directly by HMRC into the account, rather than as one lump sum at the end of the tax year, so it starts working (and potentially growing, in a Stocks & Shares LISA) almost as soon as you contribute.
Unlike a pension, where tax relief effectively works out at your marginal rate, the LISA bonus is a flat 25% for every eligible saver regardless of income or tax band — meaning a basic-rate taxpayer gets exactly the same proportional boost as an additional-rate taxpayer, which makes it a genuinely attractive, simple incentive compared with the more variable relief on pension contributions.
You must be between 18 and 39 to open a Lifetime ISA — you cannot open a new one on or after your 40th birthday, even though an account opened before that age can continue receiving contributions and bonus for longer. Once open, you can keep contributing (and receiving the 25% bonus) right up until your 50th birthday, giving a maximum possible window of 32 years for someone who opens an account the moment they turn 18.
Over that full 32-year window, contributing the maximum £4,000 every year would mean £128,000 paid in personally and £32,000 in government bonus on top — £160,000 before any investment growth or interest — illustrating just how significant the bonus becomes for someone who starts early and contributes consistently, compared with someone who opens an account later or contributes only occasionally.
The Lifetime ISA has two genuinely penalty-free uses. The first is buying a first home worth £450,000 or less, anywhere in the UK — a cap that hasn't been increased since the scheme launched in 2017, which means it can now exclude perfectly ordinary first homes in higher-cost areas of the country, so it's worth checking local property prices against this fixed threshold before relying on a LISA for a specific purchase. The second penalty-free use is simply reaching age 60, after which the whole pot (contributions, bonus, and any growth) can be withdrawn with no charge at all, functioning much like a retirement account.
Anyone using a LISA toward a first home needs to have held the account for at least 12 months before the bonus on that specific home purchase can be used, and the property purchase itself must go through a conveyancer or solicitor who handles the LISA withdrawal as part of the transaction — it isn't simply a case of withdrawing cash directly to your own bank account beforehand.
Withdrawing money from a Lifetime ISA for any reason other than a qualifying first home or reaching 60 triggers a 25% government withdrawal charge, applied to the total amount withdrawn — meaning it's charged on your own contributions plus the 25% bonus plus any investment growth, not just on the bonus portion. This is the detail that catches many savers out: because the charge is 25% of a pot that already includes a 25% bonus, the penalty doesn't just claw back the bonus — it also takes an extra slice of your own original money.
Worked through with simple numbers: pay in £1,000, receive a £250 bonus (25%), giving a £1,250 pot. Withdraw early for a non-qualifying reason, and the 25% penalty is charged on the full £1,250, which is £312.50 — leaving £937.50. You paid in £1,000 and received back £937.50, a real loss of £62.50 (6.25% of your own original £1,000) on top of losing the entire bonus. This is why the "25%" penalty figure understates the true cost to the saver: it removes 100% of the bonus and a further 6.25% of your own contribution.
The Lifetime ISA is due to be replaced from April 2028 by a simpler first-time buyer ISA, which is expected to remove both the retirement-at-60 withdrawal option and the 25% early-withdrawal penalty entirely — a response to long-standing criticism that the current penalty structure unfairly punishes savers who need to access their own money early, particularly during periods of financial hardship.
Existing LISA holders should keep an eye on the confirmed transition arrangements as the 2028 change approaches, since details of exactly how existing accounts, bonuses already received, and any transitional rules will be handled hadn't been fully finalised at the time of writing. Anyone currently deciding whether to open a new Lifetime ISA, particularly someone closer to the upper 39-year-old age limit, may want to factor the upcoming replacement scheme into their decision.
Take someone contributing the full £4,000 a year for five years toward a first home. Each year adds a £1,000 bonus (25% of £4,000), so over five years total contributions are £4,000 × 5 = £20,000, and total bonus is £1,000 × 5 = £5,000 — a combined pot of £25,000 before any investment growth or interest, which a Stocks & Shares LISA or a competitive Cash LISA rate would add on top over that period.
Used toward a qualifying first home worth £450,000 or less, the entire £25,000 (plus any growth) is available penalty-free, effectively meaning the saver received a genuinely free 25% top-up on every pound saved specifically for that purpose. If instead that same saver needed to withdraw the money for an unrelated reason — an emergency, a car, debt — the 25% penalty on the full £25,000 pot would be £6,250, leaving £18,750: a real loss of £1,250 compared with the £20,000 originally paid in, on top of losing the entire £5,000 bonus.
Lifetime ISAs come in two main forms: a Cash LISA, which behaves like a savings account paying interest, and a Stocks & Shares LISA, which invests contributions in the stock market with returns that can go up or down but historically outpace cash over longer periods. For a saver with a long time horizon before buying (five years or more), a Stocks & Shares LISA is often considered, though it carries investment risk that a Cash LISA doesn't — someone planning to buy within the next year or two typically leans toward the certainty of cash instead.
Compared with a Help to Buy ISA (now closed to new savers) or simply saving into an ordinary savings account, the LISA's 25% government bonus makes it structurally more generous for first-time buyer saving, provided the property and timing genuinely fit the qualifying rules. Compared with a workplace pension for retirement saving, the LISA bonus (25% of your contribution) is broadly similar in effect to basic-rate pension tax relief, but a pension additionally benefits from employer contributions (which a LISA never receives) and, for higher and additional-rate taxpayers, relief at their full marginal rate rather than a flat 25% — meaning a higher-rate taxpayer saving purely for retirement, with no first-home plans, often does better prioritising pension contributions over a LISA, especially where an employer match is on offer.