The money world’s full of strange little opportunities and pitfalls that hardly anyone seems to know about. If you’re between the ages of 18 and 40 and looking to buy your first home, for example, you could be missing out on a serious chunk of change. So far, only a little over 220,000 people are taking advantage of the Lifetime ISA scheme, leaving many more high and dry without ever realising it.

What are lifetime ISAs?

Lifetime ISAs are designed to offer a head-start to first-time buyers by topping up their savings with money from the government. For each £4 you save into the ISA, you get an automatic £1 top-up.

It might not sound like much when you lay it out life that, but in reality it’s worth an average of £677 to the savers using these accounts. So far, the scheme’s added over £150 million to a combined £604 million saved in Lifetime ISAs.

What are the rules for lifetime ISAs?

Now, obviously there are a couple of catches built into the system. For instance, while you’re allowed to take the money out pretty much whenever you want, the top-up cash you’ve been getting comes with some strings attached. To keep the extra money, you either need to use it to buy your first home or wait until you hit 60 years old before you touch it. If you’re under 60 and take your cash out, you’ll lose the top-ups – and maybe a little more after April 2021. Even so, if you’re looking to get a leg-up on the property ladder you couldn’t ask for a better start. Here are some of the basics you need to know going in.

  • You can open a Lifetime ISA between the ages of 18 and 40, and can keep on paying into it until you hit 50.
  • You can save up to £4,000 into your Lifetime ISA per year, getting up to £1,000 in top-ups in the process.
  • Pulling your money out early means losing 20% of your savings as a “withdrawal charge”. Once the 2021/22 tax year starts next April, though, things get even worse. If you draw out early after that you’ll lose a whopping 25%, not just obliterating the government top-ups but eating into your actual savings as well!
  • Your ISA can be either a “cash” or a “stocks and shares” type of account. You can even combine the two types, holding both cash and investments in the same account.

A stocks and shares ISA means you’re putting your money at greater risk, since you’re basically gambling on the markets. You don’t necessarily need to be a financial genius to do it, though. Depending on your provider, you might be able to leave the tricky investment decisions in their hands. If you’re willing to take the risk, you could stand to get much more out of your savings than you could with a cash ISA. There’s still a chance you could lose out, though.

There are, as always, a range of rules and restrictions to consider. You can only use the money to buy property costing £450,000 or less, for example. You also need to be buying with a mortgage (using a conveyancer or solicitor for the purchase), and you have to wait at least a year after opening the ISA to buy the property. That said, two or more people can pool their Lifetime ISAs when they buy together – although you’ll pay that nasty withdrawal charge if you already own or “have a legal interest in” other property.

Can a lifetime ISA help me to save?

While we’re all being encouraged to save more for “the future”, the truth is it’s often really hard to do. Setting a realistic goal and sticking to it is an important step – and buying your first home is a potentially huge investment to make. We’re waiting later in life before we finally have the resources to make that investment, though. That’s the first big hurdle that Lifetime ISAs are trying to get people over.

As word gets out about the scheme, first-time buyer hopefuls are starting to take notice. The demand for these accounts is surging, and given what they offer it’s not hard to understand why. Different providers offer different types of Lifetime ISA, though, so it’s worth putting some serious thought into your options before taking the plunge.

A tax refund can certainly help build up your deposit more quickly and we love to hear that helping our customers get their money back has helped them into a new home.

Use our tax rebate calculator to see if you're due tax back now. It only takes a minutes and you could be almost £3,000 better off in a matter of weeks.