Can you transfer a Lifetime ISA (LISA)

What is a Lifetime ISA?

A Lifetime ISA is a type of individual savings account that allows you to save up to £4,000 tax-free every year. As with other types of ISAs, you can have a stocks and shares LISA (and invest your money) or a cash LISA (and earn interest). If you plan to buy your house within the next 5 years you would likely favour a cash LISA, because the value of a stocks and shares LISA can go down as well as up. Those people with a longer timeframe may be interested in a stocks and shares LISA.

What makes a LISA particularly attractive is that the government tops up your savings with a 25% bonus on any contributions you make. You can get up to £1,000 from the government every tax year if you make the maximum contribution of £4,000.

But, this lucrative bonus comes with caveats and restrictions you won't see in other types of ISAs. For example, you can only open a LISA if you're aged over 18 but under 40 years old. And, you can only contribute until you turn 50. After that, while your account will continue to accrue interest or benefit from investment returns, you won't be able to contribute or earn any further government bonuses.

There are also very specific instances in which you are allowed to make a withdrawal from your LISA. Should you choose to make a withdrawal outside of these scenarios, you will be faced with a 25% withdrawal penalty on the full amount. Or in other words, you could potentially get back less than you have paid into your Lifetime ISA. Here you can find out more about how Lifetime ISAs work.

What are the LISA withdrawal rules?

There are only three legitimate scenarios in which you can make a LISA withdrawal without attracting a penalty. This includes:

• Buying your first home (but restrictions apply)
• Being aged 60 or over
• Being terminally ill with less than 12 months to live

In all other circumstances, you will incur the 25% withdrawal penalty which means that you can get back less than you paid in.

To buy your first home with a LISA, you will need to meet the following conditions:

• The home costs £450,000 or less
• The purchase is made through a solicitor or conveyancer
• You're purchasing with a mortgage
• You're purchasing at least 12 months after paying into your LISA account for the first time.

Because LISAs work differently from other types of ISAs, there are specific rules to be aware of before starting a transfer.

Can you transfer a Lifetime ISA to a different provider?

You can transfer your Lifetime ISA to a different LISA provider if you want. People typically opt to do this if they have a cash LISA, for instance, and want to benefit from higher interest rates. Right now, cash LISA providers can offer attractive interest rates. Make sure you check out our list of the best cash Lifetime ISAs.

Those with stocks and shares LISAs might choose to go transfer to another provider in order to benefit from lower fees and charges. This can have a significant impact on the growth of your LISA. For example, if you invested the maximum amount of £4,000 a year (and received the £1,000 government bonus every year), while assuming an investment growth rate of 6% a year with fees of 1.5%. then after 10 years your Lifetime ISA might be worth £67,965. But if you had instead reduced the fees by just 0.5% (to 1%) a year then your Lifetime ISA would be worth £70,185 after 10 years, a difference of £2,220. Don't forget that under this example you will have only contributed £40,000 over those 10 years. One way to reduce the costs of your Lifetime ISA is to transfer it to a cheaper provider. We have produced a list of the cheapest stocks and shares Lifetime ISAs.

Another reason you might want to transfer your LISA is if you want to swap between LISA types. So if you no longer want a cash LISA, you can switch to a stocks and shares LISA.

In all of the above circumstances, you will not incur a withdrawal charge as part of the transfer. This is because you're making a transfer rather than withdrawing your funds. As long as your chosen provider allows transfers in, you're free to make the transfer.

Once you're ready to make the transfer, your chosen provider will be able to give you further details. They'll likely take care of the bulk of the transfer process in the background and ensure any government bonuses and balances are carried over.

What happens to the 12-month withdrawal rule when you transfer a Lifetime ISA?

To avoid a withdrawal charge, you can only use your Lifetime ISA to buy your first home 12 months after you've opened and contributed to your LISA for the first time. So the LISA account must be open for at least 12 months.

However, the 12-month countdown starts from when you first opened the LISA account and carries over when you make the transfer. This is because, in essence, it's still the same LISA account, it's just now changed hands and is being managed by someone else.

So, for example, if you opened and paid into your LISA with provider A six months ago, but then you found a better deal with provider B and transferred your savings, you'd only need to wait another six months to withdraw your funds to purchase your first home. The clock wouldn't reset as a result of the transfer.

However, if you have a LISA and then go on to open a second LISA with a different provider and start from scratch, then you would need to wait the whole 12 months to access the funds in the second LISA. But this is a different scenario to a LISA transfer so different rules apply.

Can you transfer a LISA to another provider after you turn 40?

While you can't open a new LISA after you turn 40, you are free to transfer your existing LISA to a different provider if you wish. You would be transferring your existing LISA to a different provider when you make the transfer, so it wouldn't count as opening a new LISA account.

Some providers don't allow transfers in beyond the age of 40, while others cap this at 50. You would simply need to check with your provider of choice to ensure they allow transfers in before you proceed.

Can you transfer a Lifetime ISA to another type of ISA?

You can transfer your LISA to another type of ISA if you want, but you will face a withdrawal penalty. Once you've transferred your money out of the LISA product, the LISA withdrawal restrictions will no longer apply. You could then use the money for any purpose you choose and withdraw the funds as soon as the transfer is complete.

As such, transferring to a different type of ISA will attract the withdrawal penalty and you will lose out on the government bonus as well as some of your savings potentially. So while there's nothing technically stopping you from making the transfer, there are financial implications you should consider before making this move.

Can you transfer a Help to Buy ISA to a Lifetime ISA?

If you have both a Help to Buy ISA and a Lifetime ISA, you might be aware that you can only use the government bonus from one of them to buy your first house. With your LISA, your government bonus is usually claimed by your ISA provider and paid into your account monthly. With a Help to Buy ISA, the government bonus is only paid on the completion of your home. Help to Buy ISAs closed to new accounts back in 2019, but many people saving for a home still have an active account.

You can, if you wish, transfer your Help to Buy ISA funds to your Lifetime ISA account. These funds will be eligible for the government bonus right away if they're within the £4,000 annual limit.

Partial transfers are possible too, and may sometimes be necessary. Bear in mind that if you have more than £4,000 in your Help to Buy ISA, you won't be able to transfer the full amount right away. Also, if you have already contributed to your LISA during the tax year, you won't be able to benefit from the full £4,000 limit. So, for example, if you have a Help to Buy ISA worth £4,000 but you've already contributed £2,000 to your LISA, you can only transfer £2,000 from your H2B to your LISA in the same tax year.

Best place to transfer a Lifetime ISA

The best Lifetime ISA for you depends whether you want a cost-effective stocks and shares LISA with minimal fees or a cash LISA with an attractive interest rate.

If you're looking for value for money and attractive fees on an investment LISA, you might want to check out our round-up of the cheapest & best LISA providers which we update regularly. Hargreaves Lansdown* offers one of the most cost-effective stocks and shares Lifetime ISAs with a wide range of investment options as well as the ability to hold your money in cash. If you're looking for the best cash LISAs on the market right now, you might want to bookmark our best cash Lifetime ISA table. We list the best rates available every week to give you the latest deals. Tembo currently offers one of the most attractive cash Lifetime ISA rates of 4.3% AER.

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