Last updated: 16 October 2026
What is a Lifetime ISA?
A Lifetime ISA (LISA) is a tax-free savings account for people aged 18 to 39 when they open it. You can pay in up to £4,000 a year until age 50, and the government adds a 25% bonus, up to £1,000 a year. Interest and gains are tax-free. The £4,000 counts towards your overall ISA allowance of £20,000 a year.
When can you take money out without a penalty?
| Reason for withdrawal | Charge |
| Buying your first home, costing up to £450,000 | None |
| Reaching age 60 | None |
| Terminal illness (life expectancy of 12 months or less) | None |
| Death | None |
| Any other reason | 25% withdrawal charge |
The 25% charge recovers the bonus and takes a little more, so you get back less than you paid in.
Terminal illness
If you are diagnosed with a terminal illness and are expected to live 12 months or less, you can withdraw all your LISA savings, including the bonus and any growth, without the withdrawal charge. You apply through your LISA provider, with medical evidence. The money is then yours to use as you wish.
On death
When a LISA holder dies, the account stops getting the bonus, and the funds can be paid out without the 25% charge. The investments can stay tax-free in a continuing account of a deceased investor until the estate is wound up, for up to three years. The value forms part of the estate for inheritance tax. A surviving spouse or civil partner can get an additional permitted subscription, which lets them pay in an extra amount equal to the value of the deceased’s ISAs into their own ISA, on top of their normal allowance.
Example
Mark paid £4,000 a year into a LISA for six years and it is now worth £33,000, including bonuses and growth. Sadly he is diagnosed with a terminal illness. He withdraws the full £33,000 with no charge. If he had withdrawn it for another reason, the 25% charge would have cost him £8,250.
Inheritance tax
ISAs are not free of inheritance tax. If the estate is above the nil rate band of £325,000 (plus the residence nil rate band, if available), ISA savings may be taxed at 40%. Leaving ISAs to a spouse or civil partner is exempt.
Other LISA points
- You can hold only one LISA at a time.
- Withdrawals for a first home must be paid directly to the conveyancer.
- The property price limit of £450,000 has not changed since 2017, which affects buyers in London.
- The government plans to replace the LISA with a new First Time Buyer ISA. It consulted on the design until 18 August 2026. Until the new product launches, you can still open a LISA and keep saving into it under the current rules.
Frequently asked questions
Does the withdrawal charge apply if I move abroad?
Yes, unless one of the exempt reasons applies.
Can my executors get the government bonus paid after death?
Bonuses for payments made before death are still paid.
Is a terminal illness withdrawal taxable?
No. All LISA withdrawals are tax-free.
Can my spouse inherit the LISA itself?
No, but they can use the additional permitted subscription.
Related: ISA tax rules, using this year’s cash ISA allowance and ISA now or after the new tax year.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with ISAs and savings tax planning. See our personal tax accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
