Lifetime ISAs (individual savings accounts) are tax-free accounts designed for individuals who want to save for their first home or for retirement.
Up to £4,000 can be paid into a LISA each year, with no tax to pay on any interest, capital gains, or dividends earned.
They can be opened by UK residents aged between 18 and 39, and holders can continue to make deposits until their 50th birthday.
Their main appeal is the chunky government bonus on offer. With a LISA, the government will top up payments by 25%, up to £1,000, per year.
If you saved or invested £1,000 in a year, for instance, the government would add £250 — resulting in a balance of £1,250 plus any interest or other returns you earned.
The maximum permitted saving or investment would attract a £1,000 bonus.
There are two types of LISA: cash LISAs, and stocks and shares LISAs.
For savers looking to squirrel away money, cash LISAs pay a variable rate of interest on cash savings.
For more adventurous types who want exposure to the stock market, stocks and shares LISAs offer a tax-free wrapper for investments whether through DIY share and fund choices, or using ready-made portfolios.
The same rules for deposits, withdrawals, and bonuses apply to both types of LISA (see FAQs below).
