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Are you Aged 18 but under 40 - Consider a Lifetime ISA as rumours abound about possible changes at next budget

6th July 2025

A Lifetime ISA (LISA) is a UK government-backed Individual Savings Account designed to help people aged 18 and under 40 and save for either their first home or for later life.

Government Bonus and Tax Benefits
The government adds a 25% bonus on your contributions, up to £1,000 per year.

Any interest or investment growth within the LISA is tax-free, just like other ISAs.

Withdrawal Rules
First-time home purchase.
You can withdraw funds penalty-free to help buy your first home, provided:
The property costs £450,000 or less.
You've held the LISA for at least 12 months.

You use a solicitor or conveyancer who receives the funds directly from your provider.

Retirement access
At age 60 or over, you can withdraw all your savings and bonuses without any charge.

Unauthorised withdrawals
Any other withdrawal incurs a 25% government charge, effectively clawing back the bonus and a bit more of your original savings.

Should You Open a Lifetime ISA Now?
Opening a Lifetime ISA (LISA) before the next Budget can lock in today's rules and guarantee you the 25% government bonus on up to £4,000 of contributions each year. Here's how to weigh the decision:

Why Act Before Potential Rule Changes?
Government bonus guarantee Savings made now will earn the full 25% bonus, even if the Chancellor reduces or removes the LISA in future budgets.

Age eligibility window You must open a LISA before your 40th birthday. Delaying could push you past that cut-off if you're in your late 30s.

Provider application times Some providers take longer to verify applications. Early sign-up ensures you start your 12-month bonus "clock" without delay.

Risks of Waiting
Bonus reduction or closure The Chancellor could lower the bonus percentage, cut the annual contribution limit, or close the scheme to new applicants.

Missed tax year If new rules take effect before the end of the current tax year, you could lose the chance to contribute the full £4,000 allowance.

Potential Downsides of Opening Now
Access restrictions Funds (and bonuses) are locked until age 60 or first-time home purchase; early withdrawals incur a 25% charge.

Interest vs investment returns If you choose a cash LISA with a low rate, inflation could outpace your interest earnings. Conversely, a stocks & shares LISA carries market risk.

Action Plan
Confirm you’re aged 18-39 and a UK resident.

Compare top providers for cash or stocks & shares LISAs (rates, fees, platform features).

Apply and contribute before the next Budget announcement—ideally within this tax year.

Finally
If you are between 18 and 40 years old and are thinking about buying a house in the future then consider this way of saving for the deposit as it carries a significant bonus from the government.

Even if you never buy a house you can still withdraw everything including the bonus at age 60.

Even if you cannot save much at the moment any small amount can start the account running and you can increase the saving later.

Do your research and get started in tis income tax year in case the chancellor changes the rules as it is likely existing savers may keep the opportunity while new savers may get locked out.

Best Lifetime ISA Rates in 2025
Here are the top cash Lifetime ISAs by headline interest rate, updated June 20252:

Provider Type Rate / AER
Plum Lifetime ISA Cash 4.75%
Moneybox Cash Lifetime ISA Cash 4.76%
Tembo Money Cash Lifetime ISA Cash 4.33%
Paragon Bank Cash LISA Issue 3 Cash 3.51%
Bath Building Society LISA Cash 3.10%

Top Stocks & Shares Lifetime ISA Providers
Hargreaves Lansdown - broad investment range, higher platform fees

AJ Bell Dodl – beginner-focused, low charges, fewer investment choices

Moneybox – app-based rounding-up feature, access to funds, ETFs and U.S. stocks

Cash vs Stocks & Shares Lifetime ISA
How They Differ
A Cash LISA functions like a savings account: you earn a fixed interest rate on your balance.

A Stocks & Shares LISA invests your contributions (and the 25% government bonus) in funds or shares, so your pot can grow faster—but it can also fall in value.

You can hold uninvested cash temporarily in a Stocks & Shares LISA while you decide where to deploy it.

Pros & Cons
Cash Lifetime ISA (safer, predictable returns)

Pros
Low risk, guaranteed interest on all deposits
Easy to understand and manage

Cons
Interest may lag house-price inflation
No opportunity to benefit from stock-market gains
Stocks & Shares Lifetime ISA (higher potential returns, greater risk)

Pros
Potential for stronger long-term growth
Choice of funds, ready-made portfolios or DIY investing

Cons
Value can fall, especially over short periods
Platform and fund fees reduce net returns