What this guide covers
Open a Lifetime ISA (LISA) between age 18 and 39. Save up to £4,000 a year. The government adds a 25% bonus (up to £1,000/yr). Use it for a first home up to £450,000 or after age 60. If you take it out for anything else, you pay a 25% withdrawal charge — which means you can lose some of your own money, not just the bonus.
The four ISA types in one paragraph each
Cash ISA. A bog-standard savings account where the interest is tax-free. Up to £20,000 a year total ISA allowance across all your ISAs. Money is available any time. Interest rates in 2026 are typically 4-5% on fixed-rate, 3-4% easy-access.
Stocks & Shares ISA. Same £20,000 cap, same tax wrapper. But the money is invested in shares, funds or bonds, so it can go up or down. Historically returns average roughly 5-7% a year after fees over long horizons, but can be -30% in a bad year and +30% in a good one.
Lifetime ISA. Open from age 18-39. £4,000/yr cap (counts against the £20k overall allowance). Government adds 25% bonus monthly. Two legitimate uses: first home (up to £450,000) or retirement at age 60+. Anything else triggers a 25% withdrawal charge that can leave you worse off than you started.
Innovative Finance ISA. Peer-to-peer lending wrapper. Higher rates, much higher risk, no FSCS protection. Most under-25s should skip this.
How the LISA bonus actually works
The government pays the 25% bonus directly into your LISA, normally within 4-9 weeks of each contribution.
If you open a LISA at 18 and pay in £4,000 a year, by age 50 you've paid in £128,000 and received £32,000 in free bonuses. With investment growth on top, the LISA can comfortably reach £200-300k as a first-home or retirement pot.
The £450,000 cap — and why it bites in London
To use the LISA for a first home, the property has to cost £450,000 or less. That cap has been frozen since 2017, despite house-price inflation. In most of the UK it's plenty. In central London, large parts of the South East, Cambridge, Oxford, Edinburgh, Bristol and some commuter belts, average flats already exceed it.
If you complete on a property over £450k, you can't use the LISA for the deposit — and if you do withdraw, you pay the 25% withdrawal charge. So in 2026, students saving for first homes in expensive areas need a backup plan (a S&S ISA alongside the LISA, or splitting your saving).
The 25% withdrawal charge — the trap
If you take money out of a LISA for anything except a first home or retirement, the government takes back the bonus plus a penalty. The maths is sneaky.
You put in £1,000. Government adds £250. You have £1,250. You withdraw the £1,250 early — government takes 25% of the £1,250 = £312.50. You walk away with £937.50. You're down £62.50 of your own money.
LISA vs S&S ISA: which to use first
If your goal is a first home within 2-3 years: Cash LISA. Bonus is huge, time horizon too short for stock-market risk.
If your goal is a first home in 5+ years: Stocks & Shares LISA. Long enough for share-market growth to outweigh short-term wobbles.
If your goal is to save for retirement: Pension first (employer match), then S&S LISA as a top-up. Pensions normally win on tax for retirement, but the LISA bonus + flexibility to use it as either home deposit or retirement makes it a decent second wrapper.
If you might need the money for anything except retirement or first home: S&S ISA, no LISA.
National Curriculum links
- England — PSHE Association KS4 L17 (financial responsibility), L18 (long-term financial planning)
- England — Maths KS4 (percentages, compound growth)
- England — Citizenship KS4 (operation of the economy)
- Wales — Curriculum for Wales Progression Step 5 (HWB, Maths & Numeracy)
- Scotland — Curriculum for Excellence MNU 4-09a, HWB 4-21a
- NI — LLW KS4 Personal Finance
Full mapping in the curriculum map.
UK Tax Drag (2026). LISA vs ISA — which to use for your first-home deposit. Ages 16–18 deep guide. Available at: https://kids.uktaxdrag.co.uk/ages-16-18-lisa-vs-isa-for-first-home.html
Curriculum mapping: see UK Financial Education Curriculum Map (Version 1.0).