Launched in April 2017, the lifetime ISA is a government initiative to encourage people to save for their first home or their retirement. For every £4 you save, the government will add £1 (worth up to £1,000 a year) paid at the end of each tax year, up to the age of 50. Up to £4,000 a year is eligible for the government bonus, with the government adding a 25% bonus (up to £1,000 each year) on any contributions made before your 50th birthday.
Lifetime ISAs are available to all UK residents aged 18-39 (if you turn 40 on or before 6 April 2017 you won’t be eligible). The amount you save contributes towards your £20,000 ISA allowance, and you can only open one lifetime ISA each tax year. You can move money from an existing ISA into your lifetime ISA, and any money you transfer from your previous years’ allowance will not affect your overall ISA limit for that year. Your spouse or civil partner can inherit the value of your lifetime ISA as an “additional permitted subscription” (APS) allowance.
As well as being restricted to people under 40, lifetime ISAs are designed for two very specific scenarios: to purchase a first property or withdraw after you reach the age of 60. If you want to spend the money on something other than a property and you’re under the age of 60, you’ll be hit with a 25% penalty (after April 2018). Lifetime ISAs are certainly not for everyone, and if you think you may need to use the money for a purpose other than that which the ISA is designed for, you’re probably better off investing your money elsewhere.