Guide

Lifetime ISA vs Help to Buy ISA: which is better?

If you are saving for your first home, you have probably come across both the Lifetime ISA and the Help to Buy ISA. Both offer a 25% government bonus on your savings, which makes them considerably more attractive than a standard savings account. But they have different rules, different limits, and different practical implications for how you buy.

Here is a clear comparison of the two, and guidance on which is most relevant to your situation.

The basics side by side

The Help to Buy ISA closed to new applicants in November 2019. If you do not already have one, you cannot open a new account. If you do have one, it remains valid and the bonus is still claimable.

The Lifetime ISA is still open to new applicants. If you are aged between 18 and 39 and you do not yet have one, you can open one today.

Both offer a 25% government bonus on your savings. Save £4 and the government adds £1. But the scale, the timing, and the conditions differ significantly.

Contribution limits

Help to Buy ISA: you can save up to £200 per month, with a one-off initial deposit of up to £1,200 when you first open the account. The maximum government bonus available over the life of the account is £3,000, achieved by saving £12,000.

Lifetime ISA: you can save up to £4,000 per year, and the government adds up to £1,000 per year in bonus. The bonus is paid annually, directly into the account. Over the maximum eligible period, from age 18 to 50, the maximum bonus available is £32,000.

In terms of potential bonus, the Lifetime ISA wins convincingly. The Help to Buy ISA caps out at £3,000. The Lifetime ISA can generate over ten times that over a saving lifetime.

Property price limits

Help to Buy ISA: the property must cost no more than £250,000, or £450,000 in London.

Lifetime ISA: the property must cost no more than £450,000, anywhere in the UK.

The Lifetime ISA has a higher and more consistent limit. In many parts of the country, the £250,000 cap on the Help to Buy ISA is a significant restriction. In cities where average property prices sit comfortably above this, the Help to Buy ISA bonus cannot be used at all. The Lifetime ISA's £450,000 limit is more generous and applies nationally.

When the bonus is available

This is a practical difference that matters more than many buyers realise.

Help to Buy ISA: the bonus is claimed by your solicitor at completion. It is not available at exchange. This means you cannot count on the bonus as part of your exchange deposit, you need to have the full exchange deposit available from other sources.

Lifetime ISA: the funds in the account, including the accumulated bonus, can be withdrawn and used at any point once a conveyancer requests them during the purchase process. This means the Lifetime ISA balance, including bonus, is effectively available as part of your usable deposit from the point of exchange onward.

For buyers who are working with a tight deposit and need every pound to count at exchange, the Lifetime ISA's earlier availability is a meaningful advantage.

Withdrawal penalties

Both accounts have penalties for withdrawing the money for anything other than the intended purposes.

Help to Buy ISA: if you close the account and withdraw your savings for a non property purpose, you simply receive your savings back without the bonus. There is no penalty on your original contributions, you just forfeit the government top-up.

Lifetime ISA: the withdrawal penalty is more severe. If you withdraw the money for any reason other than a first home purchase or retirement (from age 60), you pay a 25% withdrawal charge on the full amount withdrawn, including the government bonus. This effectively means you get back less than you put in. For example, if you have £10,000 in the account (including £2,000 of government bonus) and you withdraw it for a non qualifying reason, you pay a 25% charge of £2,500, leaving you with £7,500, less than your original £8,000 contribution.

The Lifetime ISA penalty was temporarily reduced to 20% during the pandemic but has since returned to 25%. The severity of the penalty means you should only open a Lifetime ISA if you are confident you will either use it for a first home purchase or leave it until retirement. If there is a real chance you will need the money for something else, a standard ISA or savings account offers more flexibility.

Age restrictions

Help to Buy ISA: you must have been aged 16 or over to open one before the scheme closed.

Lifetime ISA: you must be aged between 18 and 39 to open an account. You can continue saving into it until age 50, but you must open the account before your 40th birthday. After 50, no further contributions are allowed and no further bonus is earned.

If you are approaching 40 and do not yet have a Lifetime ISA, opening one before your birthday allows you to access the bonus for the next ten years. The sooner you open one, the more bonus you can accumulate.

Can you have both?

Yes. There is nothing stopping you from having both a Help to Buy ISA (if you already have one) and a Lifetime ISA. You can save into both simultaneously.

However, you can only use the government bonus from one of them toward a first home purchase. You must choose which bonus to apply at the time of buying. You can use the funds from both accounts, but the bonus from only one.

In practice, most buyers with both accounts choose to use the Lifetime ISA bonus, as it is typically larger. The Help to Buy ISA funds (without the bonus) can still be used as part of the deposit.

Which should you use?

If you do not have either account and are aged 18 to 39: open a Lifetime ISA. The higher contribution limit, higher property price cap, and much larger potential bonus make it the stronger option for most buyers. The Stocks and Shares version offers the potential for investment growth on top of the bonus, though it also carries investment risk. The Cash version offers security at the cost of lower potential returns.

If you already have a Help to Buy ISA and are aged 18 to 39: consider opening a Lifetime ISA as well and saving into both. Use the Lifetime ISA bonus when you buy.

If you already have a Help to Buy ISA and are over 40: you cannot open a Lifetime ISA. Continue saving into your Help to Buy ISA for the £3,000 bonus, and make sure the property you are buying is within the price cap.

If you have a Help to Buy ISA and the property you want to buy is above £250,000 outside London: the Help to Buy ISA bonus cannot be used. Prioritise the Lifetime ISA if you are eligible.

A note on the Lifetime ISA and Stocks and Shares

The Lifetime ISA comes in two forms: Cash and Stocks and Shares. The Cash version works like a savings account, your money is secure and earns interest. The Stocks and Shares version invests your money in the stock market, which means the potential for higher returns over time but also the risk that the value falls, particularly in the short term.

If you expect to buy within the next two or three years, a Cash Lifetime ISA is generally more appropriate, you want the certainty of knowing your deposit is intact when you need it. If your home purchase is five or more years away, a Stocks and Shares version has more time to smooth out short term volatility and may deliver meaningfully higher returns.

If you have questions about how your ISA savings feed into your overall deposit plan, a mortgage adviser can help you think through the numbers clearly.

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This article is for informational purposes only and does not constitute financial advice. Government scheme terms can change, so always verify current rules before making decisions. Speak to a qualified mortgage adviser before making decisions about borrowing.