Lifetime ISA Calculator UK: Bonus, Growth and Exit Charge

A Lifetime ISA adds 25% to everything you pay in, up to £1,000 a year, which is the largest guaranteed uplift available outside a pension. It also charges 25% on the way out if you take the money for anything other than a first home or your 60th birthday, and that charge is bigger than the bonus, because it applies to the bonus and the growth as well as your own money. This calculator runs both sides: what the pot becomes, and what you would actually receive.

How the calculator treats the rules

The bonus is 25% of what you pay in, capped at £1,000 in a tax year because contributions are capped at £4,000. HMRC pays it monthly rather than in one lump at the end of the year, so the calculator credits each month's bonus the following month and then lets it grow with the rest of the pot. That matters over a long run: bonus paid at 25 has 35 years to compound before it is spent at 60.

Contributions and the bonus stop the day before your 50th birthday. If your withdrawal age is above 50 the calculator pays in until 50, then grows the pot with no further contributions. Your £4,000 also sits inside the overall £20,000 ISA allowance, so paying the maximum into a Lifetime ISA leaves £16,000 for your stocks and shares ISA or cash ISA that year.

The three exits that avoid the charge

• A first home costing £450,000 or less. You must be a first-time buyer, the account must have been open at least 12 months, and the money goes to your conveyancer rather than to you.
• Age 60 or over. Any purpose, no charge, no tax.
• Terminal illness with less than 12 months to live.

Everything else is a charged withdrawal at 25%, and that includes buying a first home over the price cap, which is the trap that bites hardest in London and the South East.

Why 25% out is worse than 25% in

The two percentages look symmetrical and are not. Pay in £4,000 and the bonus takes you to £5,000. Withdraw that £5,000 early and the 25% charge is £1,250, leaving £3,750. You put in £4,000 and got back £3,750, so you are £250 down: a 6.25% loss on your own money, before you count any growth the charge also claws back. Run the calculator with growth set to 0 and an early withdrawal to see that gap on your own numbers.

This is the reason a Lifetime ISA is a commitment rather than a flexible savings pot. If there is a real chance you will need the money for something other than a first home before 60, the comparison against a pension and a plain ISA is worth reading before you open one.

Related

• Lifetime ISA explained: the bonus, the rules and the penalty trap
• Best Lifetime ISA providers for stocks and shares
• ISA allowance: limits and what counts towards it
• Investment growth calculator for the rest of your portfolio

Projections are estimates, not promises. Investment values fall as well as rise, and rules and limits can change. This is information, not financial advice.