The Short Answer
If you're saving for your first home (under £450,000) or for retirement, a Lifetime ISA gives you a 25% government bonus. But if you might need the money for anything else, a regular ISA is more flexible.
Lifetime ISA: The Basics
- Must be aged 18–39 to open.
- Contribute up to £4,000/year (counts towards your £20,000 ISA allowance).
- Government adds 25% bonus (up to £1,000/year).
- Penalty-free withdrawal only for: first home purchase (up to £450,000) or after age 60.
- Early withdrawal penalty: 25% of the amount withdrawn (you lose more than the bonus).
When the Lifetime ISA Wins
- You're saving for a first home under £450,000.
- You want extra retirement savings with a guaranteed 25% return.
- You're confident you won't need the money before 60 (if not buying a home).
When a Regular ISA Wins
- You might need the money before 60 or before buying a home.
- You're buying a property over £450,000.
- You're over 39 (can't open a new Lifetime ISA).
- You want full flexibility with no penalties.
Can I Have Both?
Yes. Your £20,000 ISA allowance can be split. For example: £4,000 in a Lifetime ISA + £16,000 in a Stocks and Shares ISA.
Many people use a Lifetime ISA for their house deposit and a regular ISA for other savings.
The Penalty Trap
The 25% withdrawal penalty on a Lifetime ISA is calculated on the total amount (including bonus). This means you actually lose 6.25% of your own money if you withdraw early.
Example
Put in £4,000 → get £1,000 bonus = £5,000 total.
Withdraw early: 25% penalty = £1,250 taken.
You get back £3,750 — less than you put in.