Investment Guides

Advantages and Disadvantages of a Lifetime ISA

Advantages and Disadvantages of a Lifetime ISA
Lily Bridgwood
Written by Lily Bridgwood

The Lifetime ISA (LISA) has been introduced to help those aged between 18-39 save for their first home and/or for retirement. Providing you register prior to turning 40 you can put up to £4,000 each year into your LISA until you’re 50, this can be both as stocks and shares investments or cash savings.

As with any form of investment, the value of your money can decrease as well as increase when you invest in a Lifetime ISA. To help you decide whether this form of investment is for you, we’ve listed the advantages and disadvantages below:

Advantages of a Lifetime ISA

  1. First-Time Buyers
    If you are a first-time home buyer, and know for certain that you are both eligible for the LISA and plan to use your LISA savings for a deposit on your first home any time after 12 months from opening the account.
  2. 25% Government Bonus
    The LISA contribution bonus of 25% on top of your investment sum will be paid every year until you turn 50. Ultimately, if you opened a LISA at 18 and contributed the full amount until you turn 50 you could receive £32,000 for free on top of your investments.
  3. Free Transfers
    You are be able to transfer your LISA between different provides if interest rates change and you find another provider. This is true for both the current stocks and shares LISA available, and the incoming cash LISA. You can also hold more than one LISA, providing that you only pay into one at any time during each tax year. 

Disadvantages of a Lifetime ISA

  1. High Withdrawal Fees
    If an investor decides to withdraw the cash from their LISA and spend it on anything other than buying a new home, or before they turn 60, they will be liable to repay all government bonus contributions as well as an additional 5% early withdrawal charge.
  2. Higher-Rate Tax Payers Benefit More from a Pension
    A higher rate taxpayer in the UK (anyone paying in the 40% tax-band or above) will be better off with a pension, as their tax-relief will be higher up until they reach their allowances – £40,000 (Annual) and £1,000,000 (Lifetime).
  3. Limited Provider Choice
    Currently there are only three providers of the LISA, none of which are banks or building societies. The three providers available: Nutmeg; Hargreaves Lansdown & The Share Centre also only offer the LISA as a stocks and shares ISA, with no current offering of a cash ISA option from any provider.

Please head over to the OFF3R investment management channel to compare the Lifetime ISA’s available.

Risk Warning

Investing in or lending to early stage businesses involves a high level of risk, including illiquidity (inability to sell assets quickly or without substantial loss in value), lack of dividends, loss of capital and dilution risks and it should be done only as part of a diversified portfolio. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Your capital is at risk.


About the author

Lily Bridgwood

Lily Bridgwood

Lily is the Partnerships Associate at OFF3R. She has previous work experience in both the corporate and start-up environments. She joined the OFF3R team in October having recently graduated with First-Class Honours in International Business from the University of Edinburgh.