Lifetime ISA – Myths Busted Blog

October 2021


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Six Lifetime ISA Myths Busted

If you’re a first-time buyer wanting to put money aside for that first step onto the property ladder, a Lifetime ISA could be the ideal way to boost your deposit. The government will put an additional 25% bonus into your account every year. This means that if you put aside the maximum allowed total of £4,000 a year, you could receive an additional £1,000.

There are common misconceptions about what Lifetime ISAs are and how they work, so we decided to take a look at some of the myths that are out there and separate fact from fiction.

Myth 1: A Lifetime ISA is only for someone buying a house soon

The longer you have an open Lifetime ISA, the larger the government bonus you could receive. This is because the longer you have one, the more money you can put into it and therefore the more money you’ll receive through the government contribution. For example, if you contribute the maximum amount of £4,000 every year from ages 18 to 30, you could receive a 25% bonus of £1,000 a year, which adds up to £12,000. Plus, even if you’re not planning on buying a first home anytime soon, you might want to later down the line. Or, you can keep your investments where they are and take them out when you’re 60 years old.

Myth 2: You can’t access or move money once it’s transferred into a Lifetime ISA

If your Lifetime ISA has been open for a year or more, you can use the money to pay for the deposit on your first home. Alternatively, you can wait until you’re 60 or over and take the money out for retirement, whether you own a home or not.

You can withdraw your funds at any time, but you will face a Lifetime ISA withdrawal penalty of 25% if you withdraw within the first 12 months, or for a reason that is not permitted. The only permitted reasons for withdrawing from your Lifetime ISA are for the purchase of a first home, for retirement, or in exceptional circumstances such as terminal illness. You will also pay the same Lifetime ISA penalty if you transfer the money to another type of ISA before turning 60 years old, so the money you get back might be less than you put in.

Myth 3: You need a large lump sum to open your Lifetime ISA

You only need an initial investment of £25 to open a BMO Lifetime ISA if you’re going to set up a monthly direct debit, or a £100 lump sum if not.

The advantage of setting up a direct debit is that you can make a regular monthly Lifetime ISA deposit rather than large one-off payments.

Myth 4: You can’t open a Lifetime ISA if you’ve already invested in a Stocks and Share ISA.

Yes, you can. It’s true that you’re only allowed one Lifetime ISA and can only invest a maximum of £4,000 per year into it. But, you can invest up to £20,000 between different ISAs every tax year. How you split this is up to you. The different types of ISAs are Cash, Stocks & Shares ISAs, Lifetime and Innovative Finance. So for example, if you wanted to, you could open a Lifetime ISA and a Stocks and Shares ISA in the same year.

Myth 5: Family and friends can transfer funds directly into your Lifetime ISA.

This is another myth. As the Lifetime ISA account holder, only you can invest money into your account. You do this by transferring funds from one of your other savings or investment accounts. This could be from accounts with the same bank or a different one.

If family and friends do want to contribute, they can transfer money into your bank account which you can then add to your Lifetime ISA investment fund.

Myth 6: I can use my Lifetime ISA to purchase my second home.

Again, not true. A Lifetime ISA can only be opened by those aged between 18 to 39 years old, who are looking to buy their first home or invest for later life. You can only use the funds for a mortgage deposit on a first home under the value of £450,000 or for retirement.

In conclusion

If you’re a first-time buyer and would like to know more about how getting a Lifetime ISA can help you take your first step onto the property ladder, start by reading more on our website. Here, you’ll also find out about how you can open a Lifetime ISA of your own and start investing without delay.

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Let’s talk about risk

There’s an element of risk involved with a Lifetime ISA. The value of your investments can go down as well as up and you may get back less than you originally put in. You need to be aged between 18-39 and be a UK resident, and you should consider this as a longer-term investment. Tax allowances and the benefits of tax-efficient accounts are subject to change and tax treatment depends upon your individual circumstances.

Any withdrawals made from your Lifetime ISA that are not for an eligible house purchase or retirement when you are 60 years old will incur a Government withdrawal charge of 25% which means you could get back less than what you put in

How can I open a BMO Lifetime ISA?

Investing in a BMO Lifetime ISA is straightforward. 

Choose the investment trust(s) that best suits your investment needs and finally, decide how much to invest. Please make sure you read the Key Features and Terms & Conditions, the relevant Key Information Document and Pre-Sales Disclosure documents.

Our investor portal is the quickest and most cost-effective way to invest. You can set-up a monthly direct debit or invest a lump sum using your debit card. Alternatively, you can download an application form and send it into us. If you have a Child Trust Fund with us, you can open an account using our election hub