A stocks and shares Lifetime ISA (LISA) is part of the ISA family of products that let you earn returns on investments tax-free to go toward purchasing your first home or for your retirement. Robo-wealth manager Nutmeg offers a low-cost way of accessing a stocks and shares Lifetime ISA* using its risk-rated portfolios of exchange traded funds (ETFs).
In this article, approved by Nutmeg on 01.08.23, we explain how Nutmeg's Lifetime ISA works, how much it costs and how it compares to Nutmeg's Stocks and Shares ISA.
How much can I save into a Lifetime ISA?
You can save up to £4,000 per year in either a 'cash' or 'stocks and shares' version and it comes out of your annual ISA allowance, which is currently £20,000. You can still hold a cash or stocks and shares ISA separately.
Interest and investment returns are earned tax-free plus the government will give you a 25% bonus. For every £4 you invest you receive a £1 bonus, up to a maximum of £1,000 per year, to put towards your first home or retirement.
Anyone aged 18-39 can open a LISA but you must make a contribution before you are 40-years-old. The bonus is only paid until you are 50-years-old, at which time you must also stop contributing.
The minimum initial contribution required with Nutmeg's stocks and shares Lifetime ISA is £100.
Can I access my Nutmeg Lifetime ISA savings?
This is where it gets a bit tricky. Unlike other ISAs, the funds saved can only be withdrawn to either buy your first home (worth up to £450,000), for your retirement after age 60 or if you are terminally ill.
If you need to access your savings for any other reason, you will pay a hefty penalty of 25% of the value of withdrawal.
TIP: If you are using a Lifetime ISA to buy your first home, make sure you purchase your home at least 12 months since your first contribution. This will ensure you don't pay any penalties.
How is the government bonus being paid?
Lifetime ISAs were launched in 2017 and for the first year, the government bonus was added at the end of the tax year. The rules were changed in 2018 and the bonus is instead paid monthly. It is worth checking how this is applied though, as some providers will automatically invest it and others will hold it in a separate account. Nutmeg ensures the funds are invested with the rest of your portfolio.
For more information, read our full Lifetime ISA guide
How much does the Nutmeg Lifetime ISA cost?
As this is an investment ISA you'll need to pay platform fees and fund charges to Nutmeg and these will depend on which investment style you choose. There are five options and we explain each of them in the table below.
Nutmeg LISA - Portfolio fee comparison table
|Portfolio||Description||Nutmeg Fee - Up to £100,000||Nutmeg Fee - Over £100,000||Average Fund costs|
|Fixed Allocation portfolio||Designed to work without intervention. Nutmeg will invest in assets that match your risk level and will be rebalanced once a year.||0.45%||0.25%||0.21%|
|Smart Alpha portfolio||Portfolio is powered by J.P Morgan Asset Management and is adapted during changing market conditions.||0.75%||0.35%||0.36%|
|Fully managed portfolio||Proactively managed portfolios that are regularly rebalanced by Nutmeg in order to try and protect against losses and boost returns.||0.75%||0.35%||0.22%|
|Socially responsible fully managed portfolio||Designed with social responsibility in mind. Nutmeg makes regular strategic adjustments with a view balanced between performance and ethics.||0.75%||0.35%||0.31%|
|Thematic investing||Allows investors to invest in future trends through one of three future-focussed themes. These are Technological Innovation (including exposure to growing A.I. use), Resource transformation and Evolving Consumer. Nutmeg's thematic investment style provides a globally diversified, risk adjusted portfolio with a tilt (up to 20% of equity exposure) towards your chosen theme.||0.75%||0.35%||0.26%|
Fees correct as of 01.08.23 and subject to change.
Read our full guide to the best and cheapest Lifetime ISAs
How do I apply for a Nutmeg LISA?
You must be aged between 18 and 39 in order to open a Nutmeg LISA* and rather than throwing you straight into a stocks and shares LISA, Nutmeg has a handy tool that allows you to preview your portfolio so that you can see what it could be worth, based on your investment strategy and how long you want to invest for.
The first decision is how long you plan to invest for. The longer the better as this gives you time to make up for losses and maximise your returns. Nutmeg recommends those saving for a home have a timeframe of three years or more while you are likely to be investing for longer if saving for retirement as you can only access the pot from age 60.
The next stage is to decide how much you will invest at the start, remember you can only put a maximum of £4,000 a year into a LISA. Nutmeg offers tools to help calculate an appropriate amount based on your income, outgoings, liquid assets and debts.
Once you have decided how much to invest it is time to choose an investment style. As demonstrated in our table above, Nutmeg offers four options; fixed allocation, fully managed, smart alpha or socially responsible. We provide a more in-depth analysis of Nutmeg’s portfolios in our Nutmeg review.
After choosing your preferred investment style you'll be asked to register and will then need to complete a questionnaire that will assess your attitude to risk. This looks at aspects such as your investing experience, understanding of stock markets and how much you worry about losses and levels of risk.
Nutmeg will come up with a risk profile for you based on your responses but you can retake the questionnaire if you are unhappy with the results. Once ready, you can set up bank details and begin your LISA journey.
The platform sends regular updates on its portfolios and how the stock markets can influence them and you can always login to view performance, the funds you are invested in as well as projections to see how your portfolio could perform in the future based on your contributions.
Is Nutmeg safe?
Nutmeg is fully regulated by the Financial Conduct Authority, meaning it must meet certain standards and protect client money.
Nutmeg is a member of the UK Financial Services Compensation Scheme (FSCS) which ensured that in the unlikely event of a failure of Nutmeg, coupled with a failure to safeguard customer assets or some other failure (such as negligent advice), the value of customer assets held with Nutmeg may be protected by the FSCS up to the limit of £85,000.
Additionally, because Nutmeg is regulated you can complain to the Financial Ombudsman Service if you feel you have been treated unfairly and can’t resolve your concerns directly with Nutmeg.
Nutmeg Stocks & Shares ISA vs Nutmeg Lifetime ISA
Nutmeg also offers a stocks and shares ISA. This is slightly more flexible than a LISA as you can use your full £20,000 allowance and can open one at any age. That said, if you know you are going to be saving for your first home, a LISA is useful as it gives your money a dedicated focus plus you get the added benefit of the government bonus.
The table below outlines the differences between a stocks and shares ISA and a LISA but remember that there is also nothing stopping you from having both.
Stocks and shares ISA vs Lifetime ISA
|Stocks and shares ISA||Nutmeg Lifetime ISA|
|Age||Open from age 18 and contribute for as long as you like||Must be 18-39 to open a LISA and can pay in until you are 50|
|Contributions||Minimum initial investment of £500. Can use up to the maximum ISA allowance each tax year, currently £20,000||Minimum initial investment of £100. Can invest up to £4,000 a year|
|Government bonus||Earn returns tax-free but no government bonus||Earn returns tax-free plus government will pay a 25% bonus on each contribution up to a maximum of £1,000 per year|
|Withdrawals||Withdraw funds at any time for any reason. There may be a delay while units are sold||Funds can only be withdrawn to purchase your first home or for your retirement after aged 60. You can withdraw your funds if you become terminally ill|
|Penalties||No penalties for accessing your money||There is a penalty of 25% of the value of withdrawals if you take money for any other reason than above|
Nutmeg LISA alternatives
Investment platform AJ Bell has a low annual charge of 0.25% for its LISA but the minimum investment is high at £500 and there are fund and share dealing charges.
Alternatively, Hargreaves Lansdown has an annual platform fee of 0.45% and fund dealing is free, plus it also offers a cash LISA option albeit with no interest.
Savings app Moneybox currently offers the best rate on a cash LISA at 4.00% (rate includes a 3.25% variable base rate plus a fixed one-year bonus interest rate of 0.75%). The app rounds up your spending to essentially put your spare change in a dedicated LISA.
Read our guide to the best Lifetime ISA providers
Can I switch Lifetime ISA providers?
Lifetime ISAs work in the same way as standard ISAs. You can only contribute to one during a tax year up to the £4,000 limit but you can still switch LISA providers if you want to transfer old funds onto a new platform, for example, if you wanted to move cash LISA savings into a stocks and shares LISA.
If you have already put money into a LISA in a tax year and want to switch, you will need to transfer all your contributions. Currently, Nutmeg doesn't allow you to transfer an existing Lifetime ISA.
Pros and Cons of the Nutmeg LISA
- Good for novices
- Low minimum investment
- Not for active investors
- No cash option
- Does not currently accept transfers from other providers
Nutmeg customer reviews
Independent customer review website Trustpilot scores Nutmeg 3.7 out of 5.0 based on over 1,600 reviews. Most reviews, 70%, rank the platform as excellent, citing its performance and how easy the site is to use. There is a small proportion of negative reviews due to poor customer service or issues with how long it takes for money to be invested.
Nutmeg offers an accessible way to start investing in a Lifetime ISA*. It is also a useful way for novice investors to access the stock market, as investment decisions are made for you. All you have to do is choose your risk profile and strategy.
Its customer service is on hand with a webchat service and regular updates about your portfolio and there is no set-up, trading or transaction fees, which can eat into your returns. This isn’t the right sort of service for active investors, so if you are a fan of spotting the next best stock or fund, you are best-off trying an investment platform such as Hargreaves Lansdown where you can make your own choices. Nutmeg is also a bit limited as it doesn’t offer a cash Lifetime ISA option, meaning all your funds must be invested. Others, such as Hargreaves Lansdown and AJ Bell let you hold funds in a cash LISA, albeit with no interest.
Remember that the LISA has some restrictions, you can only open one if you are aged between 18-39 and can only access the money to fund your first home or your retirement.
Overall, Nutmeg is good for passive investors, those that are happy to sit back and rely on the experience and technology of the platform to build a low-cost LISA. Nutmeg's new Thematic Investing option can even give your investment portfolio exposure to the growing global use of Artificial Intelligence (A.I.) over the years to come.
Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.
Lifetime ISA checklist
- As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.
- A stocks and shares Lifetime ISA may not be right for everyone and tax rules may change in the future
- You must be 18–39 years old to open a Lifetime ISA
- If you need to access the money in your LISA before you’re 60 (Other than for the purchase of a first home up to £450,000 or due to a terminal illness) you’ll pay a 25% government penalty and so it is possible that you may get back less than you put in
- A Lifetime ISA is treated differently than a pension for tax purposes and so you may be better off contributing to a pension. Check out our article "Pension vs Lifetime ISA - which is the better investment?"
- Think carefully before choosing to opt out of a workplace pension in order to pay into a Lifetime ISA as you may lose the benefits of the employer-matched contributions.
- Always seek financial advice if you are unsure whether a Lifetime ISA is the right choice for you
*Nutmeg has agreed to pay a small fee for new customers acquired via the asterisked links in this article which helps us keep MoneytotheMasses.com free to use. But as you can clearly see this has in no way influenced this independent and balanced review of the product. Please use the following link if you would prefer that MoneytotheMasses.com does not receive any payment for your referral - Nutmeg