Editing Individual savings account (section)

===Lifetime ISA===
In the [[2016 United Kingdom budget|2016 Budget]] it was announced that a lifetime ISA (LISA) would be introduced from 6 April 2017 as a more flexible way to save for both home purchase and retirement. Only those aged 18 to 40 can open an account, and at the end of the tax year (or when used for purchase) a 25% bonus on contributions of up to £4,000 a year will be paid. The £4,000 is part of the overall ISA annual allowance, not in addition to it. On reaching age 50, no more money can be added to the account and eligibility for the 25% bonus ceases, but the account will still earn interest or investment returns.<ref name=":1">{{Cite web|url=https://www.gov.uk/lifetime-isa|title=Lifetime ISA|website=GOV.UK|language=en|access-date=2020-01-22}}</ref> The accounts have the same [[Inheritance Tax in the United Kingdom|inheritance tax]] treatment as other ISAs.<ref name="TheNewLifetimeISWithdraw">{{cite web|url=https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508176/Lifetime_ISA_final.pdf|title=The new lifetime ISA|publisher=[[HM Treasury]]|date=15 March 2016<!--from PDF source-->|quote=1.18 Where people are diagnosed with terminal ill health, they will be able to withdraw all of the funds (including the bonus) tax-free, regardless of the individual’s age. The definition of terminal ill health will be based on that used for pensions. ... 1.19 The Lifetime ISA will have the same inheritance tax treatment as all ISAs. Upon the death of the account holder, the funds will form part of the estate for inheritance tax purposes. Their spouse or civil partner can also inherit their ISA tax advantages and will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance. ... 1.22 The government will also explore with the industry whether there should be the flexibility to borrow funds from the Lifetime ISA without incurring a charge if the borrowed funds are fully repaid; for example, some US retirement plans allow 50% to be borrowed up to a maximum of $50,000. }}</ref>

Permitted investments are as for cash or S&S ISAs, and as for them any number of accounts is allowed, but only one account can hold current year money. After the account has been open for at least 12 months, the money can be used for a first home purchased with a mortgage and priced up to £450,000; the money is paid to the conveyancer and can be returned to the ISA if the sale does not complete. There are restrictions in place to avoid abuse of the scheme, for instance those who purchase a home with a LISA are barred from renting the property out.<ref>{{Cite web |title=Return of Lifetime Isa exit penalty 'will delay house purchases by years' |quote=There are other downsides to the Lisa that could also put off savers. Account holders can only buy a house up to the value of £450,000 and are unable to rent out any home bought using a Lisa. |url=https://www.telegraph.co.uk/investing/isas/return-lifetime-isa-exit-penalty-will-delay-house-purchases/ |work=The Telegraph |date=23 March 2021}}</ref>

Money can also be withdrawn after reaching age 60. A person who is diagnosed with a medical condition giving a life expectancy of under one year can withdraw the full amount including bonus without penalty at any age, using the definition in the similar pension law. Any other withdrawal, including transfers to another type of ISA, incurs a 25% charge.<ref name=":1" /> Although the bonus and penalty are both 25%, those who withdraw funds for purposes not listed above will suffer a loss, for example:

:'''£1,000''' paid in + government bonus at '''25%''' = '''£1,250''' - penalty charge at '''25%''' = '''£937.50''' = net loss of '''£62.50'''

However, the government have created a precedent where this penalty charge may be reduced during periods of poor economic outlook and the LISA can effectively be used as a [[rainy day fund]]. Penalty charges were reduced from 25% to 20% on withdrawals between 6 March 2020 and 5 April 2021 during the [[COVID-19 recession|recession]] arising from the [[COVID-19 pandemic in the United Kingdom|COVID-19 pandemic]].<ref>{{Cite web |title=Lifetime ISA withdrawal charge reduced to 20% |url=https://www.gov.uk/guidance/lifetime-isa-withdrawal-charge-reduced-to-20 |work=gov.uk |date=9 June 2020 |access-date=2020-09-06}}</ref> This reduction ensured that savers making withdrawals received the full amount they had deposited.

£1.5 billion was held in LISA savings in 2022, and the [[United Kingdom cost of living crisis|2022 cost of living crisis]] fuelled in part by [[2021–2022 inflation surge|rising inflation]] led to calls to introduce a temporary penalty-free period to allow access to these savings.<ref>{{Cite web |last=Haynes |first=Tom |date=16 August 2022 |title=Savers should be allowed to raid Lifetime Isas, says their inventor |url=https://www.telegraph.co.uk/money/consumer-affairs/savers-should-allowed-raid-lifetime-isas-says-inventor/ |accessdate=2022-08-27 |work=Telegraph}}</ref><ref>{{Cite web |last=Denham |first=Katherine |date=13 August 2022 |title=My Help to Buy Isa is no help at all |url=https://www.thetimes.com/business-money/money/article/my-help-to-buy-isa-is-no-help-at-all-t92rgq2hn |access-date=2022-08-27 |work=[[The Times]]}}</ref>