How each scheme works
Both ISAs reward first-time buyers with a 25% government top-up, but the timing and mechanics differ sharply. The Help to Buy ISA paid its bonus only at completion, via your conveyancer, which meant it could not form part of your exchange deposit. The Lifetime ISA's bonus is paid directly into the account on a monthly basis, so the money is there when you need it and can be used at exchange.
The Help to Buy ISA closed to new savers on 30 November 2019. If you already hold one, you can continue paying in up to £200 a month (or £2,400 a year) until November 2029 and must claim your conveyancer-administered bonus by December 2030. The maximum bonus you can ever earn is £3,000, which requires saving £12,000. Everyone opening a dedicated first-home savings vehicle today uses the Lifetime ISA instead.
The Lifetime ISA is available to anyone aged 18 to 39. You can open one with as little as £1 and pay in up to £4,000 in each tax year, earning a 25% government bonus of up to £1,000 per year. Across 32 years of eligibility (from 18 to 50, which is the last age you can pay in), the maximum bonus is £32,000 on £128,000 of contributions. In practice, most savers use it for a home purchase well before that.
A critical practical difference for buyers: the LISA bonus is in your account and counts towards your deposit from day one of a purchase. It can be used at exchange of contracts, giving you more flexibility when coordinating your deposit. The Help to Buy ISA bonus only landed at completion via your conveyancer, so you had to fund the exchange deposit from other sources.
Help to Buy ISA vs Lifetime ISA: the key figures
The headline differences that determine which scheme is more generous for your circumstances.
| Feature | Help to Buy ISA | Lifetime ISA |
|---|---|---|
| Open to new savers | No (closed Nov 2019) | Yes (age 18-39) |
| Government bonus | 25% | 25% |
| Max bonus ever | £3,000 total | £32,000 lifetime (£1,000/year) |
| Annual contribution limit | £2,400 (£200/month) | £4,000 |
| Opening month extra | £1,200 in month one | N/A |
| Property price cap | £250,000 (£450,000 in London) | £450,000 UK-wide |
| When the bonus is paid | At legal completion only | Monthly, sits in the account |
| Usable at exchange | No | Yes |
| Penalty for non-qualifying use | Bonus withheld only | 25% charge on full withdrawal |
| Account deadline | Save until Nov 2029, claim by Dec 2030 | No end date for retirement use |
The LISA's bonus is usable at exchange and its property cap is higher everywhere outside London. The Help to Buy ISA's regional London cap was a notable advantage for its time.
The Lifetime ISA penalty in detail
The 25% withdrawal penalty on the LISA is frequently misunderstood. It is not simply losing the bonus: it is a 25% charge on the entire withdrawal amount, including your own contributions. If you paid in £4,000 and received a £1,000 bonus (total £5,000), a 25% penalty on withdrawal gives back only £3,750. You effectively lose £250 of your own money.
The HMRC-approved exemptions from the penalty are buying your first home (property up to £450,000), reaching age 60, or being diagnosed with a terminal illness. From April 2021 to April 2025 a reduced 20% penalty was temporarily in place, but the standard 25% rate now applies again.
This makes the LISA genuinely unsuitable for savers who are not confident they will either buy a home under £450,000 or hold the account until retirement. If your target property is in an area where average prices exceed that threshold, such as parts of London, check prices carefully before relying heavily on a LISA.
Who should choose which
For most new first-time buyers the LISA is the only option, but the decision still has nuance:
- New savers can only open a Lifetime ISA. The Help to Buy ISA is closed.
- The LISA suits buyers targeting a first home up to £450,000 anywhere in the UK.
- Existing Help to Buy ISA holders in London who plan to buy above £250,000 but below £450,000 should consider a LISA for the higher cap.
- The 25% LISA penalty makes it less flexible if your plans change. Only save what you are confident you will use for a home or retirement.
- You must have held a LISA for at least 12 months before using it on a first home purchase.
- A cash LISA protects your capital; a stocks and shares LISA can grow more but its value can fall.
- The self-employed saving for both a home deposit and retirement may find the LISA particularly versatile, serving both goals.
- First-time buyers purchasing with a non-first-time buyer partner cannot use a LISA for the purchase, but can still use it for retirement.
Combining both accounts and ISA rules
You can hold both a Help to Buy ISA and a Lifetime ISA at the same time, but you can only use one government bonus per person towards buying a first home. Many existing savers transfer their Help to Buy ISA balance into a Lifetime ISA to consolidate savings and access the higher annual limit. Transfers count towards the £4,000 LISA annual limit, so timing the transfer across two tax years can prevent the limit blocking a large transfer.
Under standard ISA rules you can only pay into one of each type of ISA in a tax year. You can hold a LISA alongside a cash ISA, a stocks and shares ISA and an innovative finance ISA in the same year, provided you stay within the overall £20,000 annual ISA allowance, with a maximum of £4,000 of that going into the LISA.
For couples both buying their first home, each partner can hold and use their own LISA, effectively doubling the bonus available towards a shared deposit. Two savers each maximising their LISA for five years would accumulate up to £50,000 in bonuses between them, alongside their contributions.
Mind the Lifetime ISA penalty
Withdrawing from a LISA for anything other than a first home (priced at £450,000 or below) or retirement after age 60 incurs a 25% charge on the full withdrawal, not just the bonus. This can leave you with less cash than you paid in. Only save into a LISA what you are confident you will use for a qualifying purpose.
Open a LISA early, even with a small amount
The 12-month minimum holding period starts from the date you first pay into the account, not the date you start saving in earnest. Opening a LISA with £1 as soon as you turn 18 (or as soon as you start thinking about buying) starts that clock immediately. You can then build the balance in subsequent months.