What is a Lifetime ISA?

Buying your first home is exciting. But saving the deposit for your first home may seem more like a far off dream. Could a Lifetime ISA help you realise your dream more quickly? 

Here we explain what you need to know in order for you to take advantage of your options.

What is a Lifetime ISA?

An ISA (Individual Savings Account) is a tax-free way to save or invest.

A Lifetime ISA (LISA) is a government supported savings initiative  designed to help you at two specific points in your lifetime:

  • when you want to buy your first home or
  • when you retire

It is the latest member of the ISA family - joining cash ISAs, stocks and shares ISAs, Innovative Finance and Junior ISAs

Who can open a Lifetime ISA?

You can only open a LISA if you are:

  • over 18 years old,
  • under 40 years old and
  • a UK resident taxpayer

Who can apply for a Metfriendly Lifetime ISA?

To apply for a Metfriendly LISA you will also need to be in the police family:

  • Serving, former or retired Police Officers
  • Serving, former or retired Police Staff
  • Serving, former or retired PCSOs
  • Special Constables and Volunteers
  • Police contractors
  • Immediate family members of all the above groups, as well as partners

For more detailed information about who membership is open to see our eligibility criteria.

How much can you save?

If you are under 40 you can open and deposit up to £4,000 per year until your 50th birthday.

If you invest the maximum £4,000 a year into a LISA you will have another £16,000 allowance to invest or save in other ISAs.

The annual ISA limit for 2017/18 and 2018/19 is £20,000 for all ISAs.

What is the government bonus?

The government will add a bonus of 25% to any savings. So, for every £4,000 you save the government will contribute £1,000.

It is important to remember that all tax treatment, government bonuses and terms and conditions regarding government penalties are based on current practice and may be changed by legislative acts at any time.

How is the money invested?

Like ordinary Individual Savings Accounts (ISAs) the money can be invested as cash or in stocks and shares. The Metfriendly LISA is invested in in a balanced mixture of equities, bonds, cash and property. So you have the potential for a higher level of return than cash, but with lower risk than investing entirely in stocks and shares.

Using your Lifetime ISA to buy your first home

The savings can only be used without penalty if you are a first-time buyer. In other words you must not have owned a property before.

The property cannot cost more than £450,000. This is more generous than the Help to Buy ISA, which is limited outside London, but £450,000 in the capital.

Two people can each use their own LISAs to buy a house together, each receiving a 25% government contribution and therefore potentially doubling its effect.

You should also be aware that a house bought through a LISA cannot normally be rented out.

Using your Lifetime ISA to help fund your retirement

Once you are over the age of 60, you can withdraw your money from a LISA and use it for whatever you like. All money taken out will be tax-free.

It is different to a pension. A pension is tax free when you pay into it, so it is the equivalent to the government’s contribution of 25% to a LISA for basic taxpayers, and both products grow in a virtually taxfree environment. However, while a pension is taxable on paying-out (apart from the tax-free cash element), all of a LISA payout is free of tax – provided you keep within the rules for withdrawals (see below).

A LISA should not be seen as an alternative to a pension as if you pay into a workplace pension you will also receive employer contributions. This means you and your employer both pay towards your pension.

The LISA should be viewed more as an account to supplement your pension savings.

Withdrawing from your Lifetime ISA

You have the choice to use the savings to buy your first home worth up to £450,000 or continue paying into it until you turn 60. For both options you can withdraw your money (including the 25% government bonus) tax-free.

However, if you withdraw your money before you are 60 for any other reason than to buy your first home (costing less than £450,000) you will pay a 25% penalty to the government. This effectively includes reclaiming the bonus and the growth on the bonus.

So for example if you save £4,000 into a LISA during the 2017/18 tax year and qualify for a 25% bonus, your total balance is £5,000. If you withdraw £5,000, £1,250 is deducted (25% of £5,000 = £1,250) meaning you will only receive £3,750*.

The exception to this is if you’re diagnosed with a terminal illness, you can withdraw all the funds (including the bonus) tax-free and penalty-free, regardless of age.

Transfers from other ISAs into a Lifetime ISA

You can transfer any other ISAs you have into the LISA, up to the maximum of £4,000 per year to take advantage of the 25% government bonus.

Ready to start saving for your first home - apply for a Lifetime ISA or if you are unsure if setting up a LISA is right for you and you need more guidance - book on to one of our free seminars.

Book your place on a first time home buyer seminar

* Ignoring other growth and charges.

Topics: Savings & Investments, Homes & Property

Back to guides and tips

Subscribe to Email Updates

​10 Steps to Better Budgeting at Christmas
Savings & Investments |11 min read
Passing out Parades
News |2 min read
Autumn Budget offers plenty of positives for police officers
Making the Most of your Money |5 min read
Our Honorary President
News |3 min read
9 Most Frequently-Asked Police Pay Questions
Making the Most of your Money |7 min read
Police Pay Award 2018/19 Announced
Making the Most of your Money |4 min read
ISA Allowances and Important Tax Thresholds
Savings & Investments |3 min read
How to help fund your child’s university education
Savings & Investments |11 min read
How much will it cost to buy my first home?
Homes & Property |8 min read
What is a Lifetime ISA?
Savings & Investments |10 min read
20 ​Police Pension Terms you should know​
Pensions & Retirement |8 min read
​Don't let surprise bills eat into your police pay
Making the Most of your Money |11 min read
16 Discounted Ways to Relax and Unwind
Making the Most of your Money |11 min read
The 9 Most Frequently-Asked Police Pay Questions
Making the Most of your Money |8 min read
Does Met Federation Reg 28 Offer you Enough Cover?
Insurance & Protection |7 min read
All you Need to Know About the Police Payslip
Making the Most of your Money |9 min read
Police Pay Award 2017/18 Announced
Making the Most of your Money |4 min read
Ten Reasons to Stay in the CARE Pension Scheme
Pensions & Retirement |5 min read
Five Tips for Planning your Retirement from the Police
Pensions & Retirement |6 min read
How to Improve your Credit Rating
Making the Most of your Money |13 min read
Meet our Members
Savings & Investments |6 min read