A Lifetime ISA (LISA) can be used to save for your retirement or to buy your first home.  The government contribute a bonus for your deposits, but there are certain conditions that allow you to make withdrawals penalty free.

You can have a look at the Lifetime ISA options at the bottom of this page.

Key factors of the Lifetime ISA are:

• You must be over 18 or under 40 years old to open one.
• You can put in up to £4,000 every tax year (this is part of your £20,000 ISA allowance for the year).
• The government will add a 25% bonus to your savings, to a maximum of £1,000 in the tax year.
• You can hold stocks and shares or cash in your lifetime ISA, or a combination of both.
• When you turn 50 years old, you can no longer pay into a Lifetime ISA, but the money you have paid in previously will continue to earn interest or investment returns.
• To open and pay into a Lifetime ISA, you must be resident in the UK - however, as a member of the Armed Forces, you and your spouse or civil partner can still open and pay into the account if you are posted outside of the UK.

Withdrawing money from your Lifetime ISA.  In order to withdraw money without a penalty, certain conditions apply:

• You are buying your first home.  The circumstances below must apply:
  • The property costs less than £450,000.
  • You buy the property at least 12 months after you make your first payment into the Lifetime ISA.
  • You use a conveyancer or solicitor to make the purchase (it would be unusual not to do this).  The ISA provider will pay the funds directly to your conveyancer or solicitor.
  • You're buying with a mortgage.
• You are aged 60 or over.
• You are terminally ill with less than 12 months to live.

Penalty for withdrawing.  If you withdraw money outside of the conditions above, you will be charged a 25% penalty.  Note that this isn't just losing the government bonus, even without interest applied.  For example:

• You add £800 to the account.
• The government adds the 25% bonus.  You now have £1000.
• You want to withdraw £1000 (without the above conditions being met).
• You lose £250 (25% of £1000), so you only withdraw £750, £50 less than you started with. 

More useful information:

• The bonus from the government is paid into your account from 4 to 9 week after you make a deposit into the account.
• You can open and contribute to a cash ISA, stocks and shares ISA, innovative finance ISA and a LISA in the same tax year (but remember the annual limits).
• Some providers let you transfer from an existing ISA into a LISA, but only a maximum of £4,000 in a tax year.
• You are not locked in with the provider of the LISA once you open it.  You can transfer the money to a new provider to get a better deal.
• You can hold more than one LISA at any time, provided they are opened in different tax years, but you can only pay into one LISA each tax year.
• Similarly to a cash ISA, the Financial Services Compensation Scheme (FSCS) protect up to £85,000 of your money in any one account in a cash LISA.
• The stocks and shares LISA protection is a bit more complicated, and is explained in more detailed in the Stocks and Shares ISA section.
• Interest rates are explained in detail in the Cash ISA section.  Cash LISAs tend to have a variable interest rate.

What I have done.  The Lifetime ISA is relatively new (since 2017) and unfortunately it wasn't something I was aware of until recently.  I turn 40 later this year, so fortunately when I found out about the LISA, I was able to open one (specifically a stocks and shares LISA), make a deposit and get my 25% bonus.  I'll have the opportunity to get paid up to ten mores years of bonuses, so a further £10,000 if I make the maximum deposits each year - before any interest or gains from stocks and shares, I will have 25% more than I paid in.  If I can get a 4% increase on my investments each year (a reasonable target), I'll have 234% more than I paid in!