If you are saving to buy your first home in the UK, two government-backed savings schemes are worth understanding in detail: the Help to Buy ISA and the Lifetime ISA (LISA). Both offer a government bonus on top of your savings, but they work in very different ways — and choosing the wrong one, or handling them incorrectly, can cost you thousands of pounds.
This guide covers both schemes in full: eligibility, mechanics, withdrawal rules, the property price cap, and a worked example comparing outcomes on a £250,000 property. Read it alongside our guide to first-time buyer mistakes before you commit to either scheme.
Help to Buy ISA: What It Is and Where It Stands
The Help to Buy ISA closed to new applicants on 30 November 2019. If you do not already have one, you cannot open one. However, if you opened an account before that date, it remains valuable: you can continue saving into it until 30 November 2029, and the government bonus is claimed on completion of your property purchase.
How the Bonus Works
The government adds a 25% bonus to your savings, up to a maximum bonus of £3,000. To receive the full £3,000, you need to have saved £12,000 in the account. The minimum bonus is £400, which requires savings of at least £1,600.
The bonus is paid by the government directly to your conveyancing solicitor on completion — you never see it in your account. This means it cannot be used for a deposit at exchange of contracts. If your solicitor needs the deposit funds at exchange, you must fund that from other sources.
Key Restrictions
- The property price cap is £250,000 outside London and £450,000 in London
- The property must be your main residence (not a buy-to-let)
- You must be a first-time buyer
- Only one bonus per person — joint buyers can each claim their own bonus
Lifetime ISA: Mechanics in Full
The Lifetime ISA (LISA) is open to anyone aged 18–39 and allows contributions of up to £4,000 per year. The government adds a 25% bonus, meaning a maximum government contribution of £1,000 per year. You can contribute until the age of 50.
Eligible Uses
A LISA can be used for:
- Purchasing your first home (subject to conditions)
- Retirement savings from age 60
That is it. Withdrawing for any other reason triggers a penalty charge.
The Withdrawal Penalty
This is the most misunderstood aspect of the LISA. If you withdraw funds for any reason other than a qualifying first home purchase or retirement, HMRC imposes a 25% withdrawal charge on the full amount withdrawn.
The 25% charge does not simply return you to where you started. It claws back the government bonus plus an additional slice of your own contributions:
- You deposit £4,000
- Government adds £1,000 (25% bonus)
- Total: £5,000
- Penalty charge: 25% of £5,000 = £1,250
- You receive back: £3,750
You deposited £4,000 and received back £3,750 — an effective loss of 6.25% of your own money. The penalty is therefore not a neutral reset; it is a genuine financial loss.
Property Purchase Conditions
To use your LISA for a first home purchase without incurring the penalty:
- The property must cost £450,000 or less (a single national cap, unlike the H2B ISA)
- You must be a first-time buyer — you cannot own or have ever owned property anywhere in the world
- You must use a residential mortgage (cash purchases do not qualify)
- You must have held the LISA for at least 12 months from the date of the first payment into the account — this is the 12-month rule, and it trips up buyers who open a LISA the month before they start seriously looking
The 12-month rule is particularly important: if you open a LISA in March and your completion is in November, you may not yet have held the account for 12 months. You would face the penalty on any funds you withdrew for the purchase.
LISA vs Pension: The Higher-Rate Taxpayer Trade-Off
For basic-rate (20%) taxpayers, the LISA bonus (25%) is broadly equivalent to basic-rate pension relief. However, for higher-rate (40%) taxpayers saving into a workplace pension, the comparison changes significantly:
| Feature | LISA | Workplace pension (higher-rate taxpayer) |
|---|---|---|
| Government top-up | 25% | 40–67% effective (including employer contributions) |
| Tax on withdrawal | None (after age 60 / qualifying purchase) | Income tax at marginal rate in retirement |
| Annual allowance | £4,000 | Up to £60,000 (2025/26) |
| Flexibility | Low (penalty for non-qualifying withdrawals) | Moderate (annuity, drawdown, UFPLS) |
| Employer matching | None | Often 3–15% employer contribution |
For a higher-rate taxpayer with access to employer matching, redirecting money into a LISA rather than a pension to buy a house is rarely optimal — unless you are close to buying and the 12-month rule has already been satisfied. Taking the LISA bonus and using the pension for retirement savings independently can work, but the numbers need checking individually.
Worked Example: £250,000 Property Purchase
Assume a buyer is purchasing a £250,000 property with a 10% deposit (£25,000) and has been saving for three years.
| Scenario | Savings | Government bonus | Total available | Notes |
|---|---|---|---|---|
| H2B ISA (max) | £12,000 | £3,000 | £15,000 | Bonus paid at completion only — not usable at exchange |
| LISA (3 years × £4,000) | £12,000 | £3,000 | £15,000 | Must have been held 12+ months; property ≤£450k |
| Neither | £12,000 | £0 | £12,000 | No government top-up |
Both the H2B ISA and LISA produce the same outcome on this example — a £3,000 government bonus — assuming maximum contributions in both cases. The key differences are practical:
- The H2B ISA bonus is paid at completion, not exchange. If your solicitor requires a 10% deposit at exchange, you must find £25,000 from other sources at that point.
- The LISA allows you to withdraw the full balance (including the bonus) before completion to fund the deposit at exchange, provided the 12-month rule is met and you use a conveyancer who follows the LISA property purchase process.
For most buyers, the LISA is therefore more flexible in practice — but only if you opened it early enough.
What to Do If You Have Both
If you opened a Help to Buy ISA before November 2019 and subsequently opened a LISA, you can use both — but you can only use the government bonus from one of them on a single property purchase. You choose at the point of claiming which bonus to use. You may use the savings from both accounts.
In practice, most buyers in this situation use the LISA bonus (because the property price cap is higher at £450,000, compared to £250,000 for H2B ISA outside London) and use the H2B ISA savings as additional deposit funds.
Read our guide on stamp duty for first-time buyers for a complete picture of the upfront costs you will face at purchase.
What to Do Next
- Check eligibility. If you are 18–39 and have not yet opened a LISA, open one as soon as possible to start the 12-month clock running.
- Calculate your timeline. Work backwards from your target purchase date to confirm you will have held the LISA for at least 12 months before completion.
- Maximise annual contributions. Put in up to £4,000 per tax year before 5 April each year to claim the maximum £1,000 annual bonus.
- Do not withdraw for other purposes. The 6.25% effective penalty on your own money is a significant cost — only use LISA funds for a qualifying purchase or retirement.
- If you have an H2B ISA, decide now which bonus you will claim. Use the LISA bonus if your property may cost between £250,000 and £450,000 outside London.
- Tell your solicitor early. LISA and H2B ISA completions require specific conveyancing steps. Give your solicitor advance notice so there are no delays at completion.
- Check the Help to Buy equity loan position if relevant — see our guide to Help to Buy equity loan repayment for how government equity loans interact with your overall mortgage position.