New HL figures show that so far in the 2024/25 tax year (to the end of 2024), more people have paid into an HL Lifetime ISA (LISA) than any other year so far – that’s up 24% in a year.
A Lifetime ISA is an investment account you can use to buy your first home or for your retirement. You can open a LISA between the age of 18 and 39 and pay in up to £4,000 every tax year until you’re 50, as part of your overall £20,000 ISA allowance.
You can choose to save cash or invest in the stock market, and as with other ISAs, your money can grow free from UK tax.
But the real benefit is an extra 25% bonus from the government of up to £1,000 a year.
Remember, ISA and tax rules can change and any benefits depend on individual circumstances. Lifetime ISA withdrawals not used to buy a first home (after 12 months from opening one) or for retirement at age 60 will usually mean a 25% government charge.
If you save into a Lifetime ISA (LISA) instead of a pension, you could miss out on employer contributions, and your entitlement to certain means-tested state benefits could be affected.
Why are LISAs becoming more popular?
The 24% increase in HL clients paying into an HL Lifetime ISA over the past year suggests there’s a growing need for its help.
The most recent HMRC figures show a record of 755,000 LISAs were paid into during the tax year 2022/23. LISA holders put in a record £1.87bn during that year – up 10% in a year.
The LISA seems to be going strong and doing more each year to help young people trying to get onto the housing ladder, as well as self-employed people trying to prepare for retirement.
This article isn’t personal advice. Investments will rise and fall in value, so you could get back less than you invest. If you’re not sure what’s right for you, speak to us about financial advice.
Get a 25% government bonus with this year’s £4,000 Lifetime ISA allowance.
Make your money work harder. You can choose to save cash or invest in the stock market, and as with other ISAs, your money can grow free from UK tax.
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What could be next for LISAs? – plus what we want to see
56,900 people used their LISA to buy a home in 2023/24 – up 1,150 in a year.
Buying a home of your own is hard enough – and the government bonus from a LISA is the only help some will get in building a deposit.
It’s clearly a major step up onto the housing ladder for tens of thousands of young people every year.
However, the maximum price of the property you can buy when you use a LISA is £450,000.
This is already below the average cost of a home in property hotspots, and if it remains frozen, it risks pricing more people out of using their Lifetime ISA.
At that point, they face paying the 25% penalty for unauthorised withdrawals – for something that’s completely outside their control.
Linking the cap to house prices would help protect buyers from this and could potentially encourage more first-time buyers to use the LISA.
The Treasury Committee is currently reviewing the LISA to see if it’s still up to scratch since they were first launched in 2017.
From the property price limit to the early withdrawal penalty, we could see some big changes.
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