Here we look at how Lifetime ISAs work, the pro’s and cons, how to get a Lifetime ISA.

What is a Lifetime ISA?

A Lifetime ISA (LISA) is a Government-backed savings account designed to help people save for their first home or retirement.

Available to UK residents aged 18 to 39, it allows savers to deposit up to £4,000 per tax year, with the Government adding a 25% bonus (up to £1,000 per year).

Key features of a Lifetime ISA:

• Save up to £4,000 per year

• Receive a 25% government bonus (max £1,000 annually)

• Use funds for a first-time property purchase or retirement savings

• Tax-free growth on savings

• Strict withdrawal rules (with penalties for early access)

A Lifetime ISA can be a powerful tool for first-time buyers and long-term savers, particularly the self-employed who don’t benefit from a workplace pension scheme.

However, it’s not ideal if you need early access to your money, and probably not worth it financially if you’re using it instead of a workplace pension scheme that is contributing to your savings more than the Government bonus on a Lifetime ISA.

May be more relevant for: First-time buyers, self-employed savers

Avoid if: You may need the money before 60 (and don’t plan to buy a house)

Key takeaway: If you fit the eligibility criteria and open an account at 18 and save the maximum until age 50, a Lifetime ISA can provide up to £32,000 in free Government bonuses (32 years of saving from age 18 to 50 x £1,000 = £32k). In 2026, this remains one of the few ways to get a guaranteed 25% return on your savings.

How does a Lifetime ISA work?

When you contribute to a Lisa, the Government adds a 25% bonus to your savings, usually paid monthly. You can invest in either:

• Cash Lifetime ISA – Works like a savings account, earning interest

• Stocks and shares Lifetime ISA – Invests in funds and stocks (potentially higher returns, but with risk)

To use your Lifetime ISA for a property purchase, you must:

• Be a first-time buyer

• Purchase a home worth £450,000 or less

• Buy with a residential mortgage

• Have had the account open for at least 12 months

For retirement savings, funds can be withdrawn tax-free from age 60. Any earlier withdrawals not for a first home incur a 25% penalty (detailed below).

How to open a Lifetime ISA

To open a Lifetime ISA, you must be:

• A UK resident

• Aged between 18-39

• Opening with a provider offering cash or stocks and shares LISAs

Steps to open a Lifetime ISA:

• Choose a provider – Popular options include Moneybox, Hargreaves Lansdown, AJ Bell, and Skipton Building Society.

• Decide between cash or stocks & shares ISAs.

• Complete the application (usually online via the provider’s website or app).

• Set up contributions – Make one-off deposits or set up regular payments.

Lifetime ISA providers

There are a number of Lifetime ISA providers, offering as much as 5% at the time of writing this article in March 2025.

The providers listed are examples of cash and stocks & shares Lifetime ISAs available to UK savers, selected based on market presence and rate competitiveness. This is not an exhaustive list of all providers in the market. Rates shown are variable and were sourced from Moneyfactscompare.co.uk on 1 July 2026 — they may have changed since publication. The comparison covers cash LISAs only; stocks & shares LISAs are investment-based and returns will vary. Eligibility criteria apply: you must be aged 18 to 39 to open a Lifetime ISA. To verify current rates and full terms, visit each provider's website directly or use an independent comparison service such as Moneyfactscompare.co.uk.

Moneybox is the most searched provider. Others do not market their products as widely, despite rising popularity among consumers, for several reasons, one of which is they see the 18-39-year-old market as too small. Another issue is over fears of a ‘misselling scandal’ due to the confusion over the 25% fee for withdrawing early and the house price limit of £450,000.

Martin Lewis said: "You have a succession of young people who are saving in the vehicle they have been encouraged by the state, who are then trying to use their savings to buy a first-time property, but due to house price inflation, that property has just tripped above the £450k level and not only do they not get the £1,000 a year bonus they were intended to get... they are fined by the State effectively 6.2% of their own money to withdraw that money to get the cash out."

However, as mentioned, Lisas are rising in popularity. According to the latest figures, an estimated 800,000 people paid into a Lifetime ISA during the 2023-24 tax year, with total investment reaching £2.38 billion (provisional figures) - a significant rise from the previous year as savers looked to maximize their government bonuses.

This information is for general guidance only and does not constitute financial advice. Suitability depends on your individual circumstances. Tax treatment may be subject to change.

Lifetime ISA for self employed

If you’re self-employed, you can open a Lifetime ISA and contribute up to £4,000 per year. You’ll receive the 25% Government bonus, just like those saving for their first home, making it a great tax-efficient way to save for retirement.

Unlike workplace pensions, which require employer contributions, self-employed individuals don’t get auto-enrolled into a pension scheme—so a Lisa can be a useful alternative.

Benefits of a Lifetime ISA for the self-employed:

• 25% Government bonus – For every £4,000 saved, the government adds £1,000, boosting your retirement fund.

• Tax-free growth – Like a pension, investments in a LISA grow tax-free.

• Flexibility – Unlike pensions, a LISA can also be used for a first home purchase, giving you dual benefits.

• No Income Tax on withdrawals – Unlike pensions, LISA withdrawals after age 60 are tax-free.

• No employer? No problem – Self-employed individuals don’t get employer pension contributions, so a LISA offers a government boost instead.

Cons of a Lifetime ISA for the self-employed:

• You can’t access the money before 60 without a penalty (unless buying a first home).

• The £4,000 LISA limit counts toward your £20,000 annual ISA allowance.

• No tax relief on contributions, unlike a pension.

Which is better for the self-employed?

Note: Tax treatment and eligibility depend on your individual circumstances and may be subject to change. This information is for general guidance only and does not constitute financial advice.

For retirement: A pension is better for most higher earners due to tax relief on contributions.

For first-time buyers: A Lifetime ISA may be more suitable to consider if you’re planning to buy a home.

For tax-free retirement income: A LISA is tax-free after 60, whereas a pension is partially taxed.

Some consumers may choose to use both, depending on their circumstances.

If you’re self-employed, a mix of both a Lifetime ISA and a pension can be a smart approach.

You could use a pension for larger contributions (especially if you’re a higher-rate taxpayer and benefit from 40% tax relief).

You could use a Lisa for tax-free withdrawals at 60 and the 25% government boost.

A Lifetime ISA can be a great additional savings tool for the self-employed, but for maximum retirement benefits, a pension may be more tax-efficient—especially for higher earners.

HMRC Lifetime ISA withdrawal penalties

The Lifetime ISA has strict withdrawal rules, and accessing funds early (for reasons other than buying a first home or retiring at 60) results in a 25% penalty.

For example:

• You save £1,000.

• The government adds £250 (25% bonus), so your total becomes £1,250.

• If you withdraw early, the 25% penalty applies to the full £1,250:

£1,250 × 25% = £312.50 penalty

• After the penalty, you receive:

£1,250 - £312.50 = £937.50

So, if you originally saved £1,000, but only get back £937.50, you have lost £62.50 of your own money—which is 6.25% of your original £1,000 savings.

There is an exception where no penalty applies if you withdraw due to a terminal illness. You can also withdraw in full if the ISA holder dies. The Lisa ends on the date someone dies.

Is a Lifetime ISA worth it?

A Lifetime ISA can be highly beneficial if:

• You are a first-time buyer and plan to use it for a home purchase.

• You want long-term retirement savings with a 25% government boost.

However, a Lisa isn’t for everyone and may not be worth it if:

• You might need access to the money before age 60 (and aren't buying a home), the 25% penalty could be costly.

• You want to save more than £4,000 a year.

• You are getting more in company contributions on a workplace pension than the Government gives.

Here are a few scenarios comparing workplace pensions with Lifetime ISAs, and also showing how much a self-employed person can get from the Government based on their contributions.

What does Martin Lewis say about Lifetime ISAs?

Martin Lewis, the founder of MoneySavingExpert, says a Lisa is better than a Help to Buy ISA (which closed in 2019) and is a great choice for first-time buyers, but only if your house price is under £450,000.

He says the withdrawal penalty is misleading because it takes some of your own money too.

He also believes the £450,000 house price limit should be raised to take into account the cost of property in the south of England.

He said: "Young savers should not be essentially fined – and lose their hard-saved cash – when they purchase homes above the scheme's £450,000 limit."

He added: "The simple solutions are to index-link the £450,000 limit to house prices (backdated to 2018) and to reduce the withdrawal penalty for those buying a first-time property above the limit to 20%."

The information on this page is intended as general guidance only and does not constitute financial advice. ISA eligibility, contribution limits, and tax treatment depend on your individual circumstances, and the value of investments can go down as well as up. Tax rules may change, and any rates or figures quoted were correct at the time of publication but are subject to change. If you are unsure whether an ISA is right for you, consider seeking independent financial advice.

Read more:

• Average Household Savings & Wealth UK

• Aged 45 to 70? You Could Turn £800 Into £5,550 By Topping Up Your State Pension

• More than £50bn in pensions at risk of being lost - how to track your pension

• One in 10 workers missing out on £250,000 free cash for their pension