The Lifetime ISA: The 25% Bonus, the 25% Charge and HMRC's Numbers
A Lifetime ISA is a UK savings account for a first home or for later life, and the government adds a 25% bonus to what you pay in, up to £1,000 a year. You must open it before 40, and taking money out for any other reason before 60 costs 25% of the amount withdrawn.
The Lifetime ISA pays the most generous bonus of any UK savings account and charges the harshest exit fee. Both are 25%, and the fact that they are the same number hides the fact that they are not the same size.
Every rule below is taken from GOV.UK’s Lifetime ISA guide as it read on 26 Sep 2026. Rules and limits change, so check the current guide before paying in.
How it works
Who can open one. You must be 18 or over but under 40, and resident in the UK (members of the armed forces, Crown servants and their spouses or civil partners also qualify while living abroad). You must make your first payment before you turn 40.
What goes in. Up to £4,000 each tax year, until you turn 50. That £4,000 is part of your overall ISA allowance, which is £20,000 for the 2026 to 2027 tax year, so a full Lifetime ISA leaves £16,000 for a stocks and shares ISA or a cash ISA that year.
What the government adds. A bonus of 25% of what you pay in, up to £1,000 a year. The bonus lands in the account and grows with it.
What it can hold. Cash, stocks and shares, or both. Like every ISA, there is no UK tax on the interest, income or gains inside it.
When the payments stop. At 50 you can no longer pay in or earn the bonus. The account stays open, and whatever is in it keeps earning interest or investment returns.
When you can take it out without a charge. Three cases: to buy your first home, from age 60, or if you are terminally ill with less than 12 months to live. If the holder dies, the account ends on that date and no charge applies.
Buying a first home with it
Four conditions must all be met. The property costs £450,000 or less. You buy it at least 12 months after your first payment into the Lifetime ISA. A conveyancer or solicitor acts for you, and the provider pays the money directly to them. And you are buying with a mortgage.
Some mortgages do not count. GOV.UK excludes a private mortgage from a relative, your spouse or civil partner, a relative of your spouse or civil partner, or anyone married to or in a civil partnership with one of those relatives.
Two buyers can each use one. If you buy with someone who also has a Lifetime ISA, you can both use your savings and bonus, provided you are both first-time buyers and both meet the conditions.
The price cap is the same as at launch. The government’s February 2017 guide to the new account gave the same £450,000 limit. A cap fixed in pounds covers fewer homes as prices rise, and a buyer who ends up above it can only take the money out through the 25% charge.
A Help to Buy ISA can be moved in. You can transfer a Help to Buy ISA into a Lifetime ISA, but if you keep both, you can use the bonus from only one of them on your first home.
Why the 25% charge is bigger than the 25% bonus
The two percentages are applied to different amounts. The bonus is 25% of what you paid in. The charge is 25% of what you take out, and what you take out already includes the bonus.
Follow £1,000 of your own money through it. The bonus adds £250, making £1,250. Withdraw all of it for an unapproved reason and the charge is 25% of £1,250, which is £312.50. You receive £937.50, which is £62.50 less than you put in.
GOV.UK’s own example uses £800: a £200 bonus makes £1,000, the charge is £250, and £750 is left. Either way the loss is 6.25% of your own money, before any growth or interest.
Taking out part of it means asking for more than you need. To receive £120 in cash, you would withdraw £160 and pay a £40 charge, GOV.UK says.
The charge was briefly 20%. From 6 Mar 2020 to 5 Apr 2021, HMRC cut it to 20%, which only took the bonus back. It returned to 25% on 6 Apr 2021.
A worked example
Take a hypothetical saver aged 30 who pays in the full £4,000 a year for five years, with no interest or growth assumed, which keeps the arithmetic clean.
Paid in: 5 x £4,000 = £20,000. Bonus: 25% of £20,000 = £5,000. Account value: £25,000.
Outcome one: a first home at £300,000. The price is under the cap and more than 12 months have passed since the first payment, so the provider sends all £25,000 to the solicitor. The £5,000 bonus goes toward the deposit.
Outcome two: the money is needed for something else. The charge is 25% of £25,000, which is £6,250. The saver receives £18,750, which is £1,250 less than the £20,000 they paid in.
Outcome three: the home costs £460,000. It is £10,000 over the cap, so the Lifetime ISA cannot be used for it without the same £6,250 charge as outcome two.
The original data
HMRC publishes how Lifetime ISA money actually leaves the account. Its Lifetime ISA tables, released in September 2026, count individuals making withdrawals each tax year, rounded to the nearest 50, with values rounded to the nearest £1,000.
In the 2025 to 2026 tax year, 99,750 people withdrew to buy a first home, taking £1,536,484,000 between them, an average of £15,407. In the same year, 154,100 people made unauthorized withdrawals of £475,944,000 and paid £118,985,000 in withdrawal charges.
Unauthorized withdrawers outnumbered home buyers in five of the eight years in the table: 2020 to 2021, and every year from 2022 to 2023 onward. Across all eight years, withdrawal charges came to £434,602,000.
| Tax year | Withdrew for a first home | Unauthorized withdrawals | Charges paid |
|---|---|---|---|
| 2018 to 2019 | 8,200 | 6,800 | £5,287,000 |
| 2019 to 2020 | 22,350 | 14,450 | £10,083,000 |
| 2020 to 2021 | 34,100 | 41,750 | £34,496,000 |
| 2021 to 2022 | 50,250 | 47,950 | £33,583,000 |
| 2022 to 2023 | 55,700 | 76,150 | £54,408,000 |
| 2023 to 2024 | 56,700 | 100,000 | £75,412,000 |
| 2024 to 2025 | 86,700 | 129,750 | £102,348,000 |
| 2025 to 2026 | 99,750 | 154,100 | £118,985,000 |
Read the counts carefully. An unauthorized withdrawal can be a small part of the balance, and the same person can appear in both columns. The table does not say how many accounts were emptied, only how many people paid the charge at least once.
The account keeps growing. HMRC’s ISA tables count 1,136,000 Lifetime ISAs paid into in 2024 to 2025 (provisional), up from 154,000 in the first year, 2017 to 2018. They received £2,818 million, an average of £2,481 each, which is 62.0% of the £4,000 limit.
All the yearly figures are in the Lifetime ISA table for this page.
When it fails
The main failure is needing the money early. A Lifetime ISA is locked until 60 for anyone who does not buy a first home with it. Money that might be needed for an emergency sits better in an emergency fund outside it, because the charge takes back more than the bonus gave.
The second is the price cap. A saver who ends up buying above £450,000 cannot use the account for that home without paying the charge, however long they saved.
The third is timing. The first payment has to be at least 12 months before the purchase. Opening the account a few months before buying is too late for that home.
The fourth is choosing it over a workplace pension. The Lifetime ISA gets the government bonus but no employer money. A pension through work usually carries an employer contribution, which a Lifetime ISA cannot match.
The fifth is leaving it in cash for decades. For the later-life use, the money may sit for twenty years or more. A cash balance keeps the bonus but may not keep pace with prices over that time, which is the same trade-off the cash ISA versus stocks and shares ISA page weighs.
The sixth is assuming the rules stay fixed. On 26 Sep 2026 the government announced a separate equity loan scheme for first-time buyers in England, Your First Home, to be confirmed at next month’s Budget. That announcement does not mention the Lifetime ISA, and the GOV.UK guide read the same day is unchanged, but any change to the account would be set out there.
Related
The stocks and shares ISA shares the same £20,000 allowance with no bonus and no charge. The cash ISA versus stocks and shares ISA comparison covers what to hold inside the account.
For the later-life use, pensions are the main alternative, and the mortgage page explains the loan a first-home withdrawal must sit alongside.
Decide which of the two jobs the account is for before the first payment. For a first home, check the price cap against what homes cost where you plan to buy. For later life, compare it with a workplace pension that carries an employer contribution. The bonus is the same either way; the ways to lose it are not.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.