Lifetime ISA for First Time Buyers: How the 25% Bonus Works in 2026

What a Lifetime ISA is

A Lifetime ISA (LISA) is a tax-advantaged savings account introduced in 2017 that pays a 25% government bonus on contributions. It can be used for two purposes: buying a first home, or saving for retirement (withdrawn from age 60). For first time buyers, the LISA is one of the most generous savings vehicles available.

The 25% bonus is paid monthly. Save £4,000 in a tax year and the government adds £1,000. Save £4,000 every year for 5 years and the government adds £5,000 plus any investment growth.

Eligibility

You can open a LISA if you:

1. Are aged 18 to 39

2. Are a UK resident (or a Crown servant abroad)

3. Have a National Insurance number

Once open, you can keep contributing until you turn 50. After 50, no new contributions are allowed but the existing balance continues to earn interest or investment returns.

Contribution limit

You can contribute up to £4,000 per tax year. The £4,000 counts towards your overall £20,000 ISA allowance (so contributing £4,000 to a LISA leaves £16,000 for other ISAs in the same year).

The 25% bonus is added on top, up to £1,000 per year. The bonus is paid monthly into the LISA account.

Using a LISA to buy a first home

You can withdraw the LISA balance plus bonus to buy a first home if all the following are true:

1. You are a first time buyer (have never owned a home anywhere in the world)

2. The property purchase price is £450,000 or less

3. The property is in the UK

4. The property will be your main home (not buy-to-let)

5. You buy with a mortgage (cash purchases are not allowed)

6. You are buying through a conveyancer who can request the funds from your LISA provider

7. You have held the LISA for at least 12 months

The 12-month minimum is important. If you open a LISA today and try to use it for a purchase next month, the withdrawal will count as a non-qualifying withdrawal and attract the 25% penalty (see below).

The £450,000 cap

The £450,000 property price cap applies everywhere in the UK including London. The cap was set in 2017 and has not been raised. Average UK house prices have risen significantly since then, so in many parts of London and the South East, the cap excludes most properties first time buyers actually look at.

The cap is the maximum allowable purchase price, not the minimum. You can buy a property below the cap and use the LISA without issue.

The withdrawal penalty

If you withdraw the LISA balance for any reason other than a qualifying first home purchase or after age 60, you pay a 25% penalty on the amount withdrawn. The penalty effectively reverses the government bonus and takes a small additional amount from your own contributions. The maths is:

• Contribute £4,000, get £1,000 bonus, total £5,000
• Withdraw early: 25% penalty on £5,000 = £1,250
• Receive: £5,000 - £1,250 = £3,750
• Net loss compared to your original £4,000: £250

This is the reason the LISA is risky for people who are uncertain whether they will buy. If you might use the money for something else, the LISA penalty makes it a worse choice than a regular ISA.

Cash vs Stocks and Shares LISA

You can hold a LISA in cash (interest-bearing deposit) or stocks and shares (investments). The choice depends on your time horizon:

• Buying within 5 years: cash LISA is usually better because you avoid market risk close to your purchase date
• Buying in 5 to 10 years: stocks and shares LISA may give better returns but with more volatility
• Saving for retirement: stocks and shares LISA is usually the right choice because you have decades to ride out volatility

What if I am over 39

If you are 40 or older you cannot open a new LISA. If you opened one before turning 40, you can continue contributing up to age 50 and use it for a first home purchase up to age 50. After 50, the funds are locked until age 60.

Alternatives if a LISA does not fit

• Help to Buy ISA (closed to new applicants since 2019, but existing accounts can still be used)
• Cash ISAs for tax-free savings without the LISA restrictions
• Premium Bonds for tax-free savings with a chance of prizes
• First Homes scheme (separate scheme covered in the First Homes guide)

Look up properties below the cap

Property Passport UK shows verified data including the latest sold price for every property in England and Wales. If you are saving in a LISA and want to research properties within the £450,000 cap in your target area, you can browse sold prices by postcode at [/sold-prices](/sold-prices) or search a specific address at [/search](/search).

Check any property in seconds with Property Passport UK

Whether you are buying through Right to Buy, Shared Ownership, First Homes, or at auction, the underlying property data matters. Property Passport UK shows verified EPC, sold price history, flood risk, listed status and tenure for every one of the 19.35 million properties in England and Wales. Search any address at [/search](/search).

Related guides

• Right to Buy explained
• Shared Ownership staircasing
• First Homes scheme explained
• Buying at auction UK guide