Compared to other types of ISAs, a Lifetime ISA has one major advantage. It gives you free money – a 25% Lifetime ISA government bonus towards saving for your future, or getting on the property ladder.
To open a Lifetime ISA, you need to be aged between 18 and 39. You can put up to £4,000 into a Lifetime ISA each year until you turn 50 – that’s the case whether you’re using an investment or cash account. The government will hand you a LISA bonus payment equal to 25% of your contributions annually.
How does the Lifetime ISA bonus work?
You’ll get Lifetime ISA bonus payments on any contributions you make up to the age of 50. And you can benefit from tax-free growth on the bonus as soon as it’s added.
If you deposited £4,000 into a Lifetime ISA with AJ Bell in one tax year, your 25% government bonus will be £1,000. If the following tax year you paid in another £2,000, the government will top it up with a £500 LISA bonus.
When is the Lifetime ISA government bonus paid?
It’s paid monthly, though it’s a little more complicated than that. Here’s how it works.
On the 6th of every month, we’ll claim a bonus on all the money you’ve paid into your Lifetime ISA during the previous month. You'll then receive the bonus four weeks after that date.
For example, if you top up your Lifetime ISA on 5 May, you'll receive your bonus just over four weeks later. On the other hand, if you top up on 7 May, you'll receive your bonus four weeks after 6 June, i.e., around eight weeks after you paid in.
If you’re buying a home with someone else, you can each use a Lifetime ISA and benefit from the government bonus.
How is the Lifetime ISA bonus paid?
The Lifetime ISA government bonus is paid as cash directly into your Lifetime ISA, so you’re able to invest it straight away.
You’ll receive your bonus automatically, four to ten weeks after you pay into your account.
Do I have to claim the bonus?
No, AJ Bell will claim the bonus on your behalf. We’ll then add the money to your Lifetime ISA, or pay it directly to the conveyancer if you’re in the final stages of buying your first home.
Do I have to pay back the LISA bonus?
No. Your bonus payments are based on contributions you’ve made to your Lifetime ISA, and are yours to keep.
It's good to know that if your property purchase falls through, you won’t be left out of pocket. Any money you withdraw from your Lifetime ISA to fund the purchase will be returned to your Lifetime ISA by the conveyancer, without counting towards your annual contribution limit.
What happens if I withdraw money?
From age 60, you can withdraw money from your Lifetime ISA without paying any penalty.
But before age 60, you’ll pay a 25% penalty charge on any money you withdraw that isn’t going towards buying your first home (worth up to £450,000). So a Lifetime ISA won’t be the right choice if you want to dip into your account whenever you like. Note that the penalty doesn’t apply to anyone who is terminally ill.
And bear in mind you'll need to wait before using a new Lifetime ISA to help fund a property purchase. You must have held the account (either with AJ Bell or with another provider, if you’re looking to transfer) for at least 12 months before you can access the money penalty-free.
Learn more about LISA withdrawals
Get investing for your first home or retirement with our low-cost LISA.
It’s free to open an account, and we won’t charge you anything to transfer in. You can transfer a Lifetime, Help to Buy, Stocks and shares or Cash ISA to an AJ Bell Lifetime ISA.
Written by:
Dan Coatsworth
Editor-in-Chief and Investment Analyst
Dan Coatsworth is AJ Bell's Editor in Chief. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He has a degree in Corporate Communications from Southampton Solent University.
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