Managing Lifetime ISA applications and accounts

Find out who can open a Lifetime ISA, what information Lifetime ISA managers need to apply, how people pay and claim government bonuses.

Who can open a Lifetime ISA

Investors must be resident in the UK and age 18 or over, but under 40 when they apply to open and make their first payment into a Lifetime ISA.

A Lifetime ISA can be opened by an individual who is not resident in the UK and is transferring funds from their matured Child Trust Fund into the Lifetime ISA in the tax year to which the application relates.

Investors can open more than one Lifetime ISA during their lifetime, but can only pay into one Lifetime ISA in each tax year unless it is:

Individuals who are 40 or older

Individuals who are 40 or older are not eligible to open a Lifetime ISA. They can however open an account to receive:

  • a transfer from a Lifetime ISA that the investor opened before they were 40
  • a defaulted Lifetime ISA payment
  • a returned withdrawal after a failed first time residential purchase

What you need from investors when they apply for a Lifetime ISA

Individuals must make an application to open a Lifetime ISA and make the first payment into the account in the tax year to which the application relates.

Find out what information you need from investors when they apply for an ISA.

A Lifetime ISA application must also:

  • specify the first tax year the application relates to
  • state that the declaration will have effect for each year in which the applicant makes a Lifetime ISA payment regardless of the fact there may have been a break of more than one year
  • state that the applicant has not and will not make payments that exceed the annual Lifetime ISA payment limit and the total annual ISA allowance

The applicant must give you authorisation to:

  • hold Lifetime ISA government bonus payments
  • submit Lifetime ISA bonus claims to HMRC
  • withhold and deduct from the balance in the account and pay any withdrawal charges to HMRC
  • make a record in writing on behalf of the applicant where an application was not made in writing or where all original applications are not retained by you, the account manager

How people pay into their Lifetime ISA

Investors can continue to pay into their Lifetime ISA any time before their 50th birthday. You must not accept payments from an investor once they reach 50.

However, investors who are 50 and older can make:

Payment limit

Investors cannot make current year payments over the Lifetime ISA payment limit.

New payments into a Lifetime ISA count against the overall annual ISA payment limit as well as the annual Lifetime ISA payment limit.

Current year payments include:

Current year payments do not include:

  • defaulted Lifetime ISA payments
  • returned Lifetime ISA withdrawals after the failed first time residential purchase
  • interest or growth within a Lifetime ISA
  • government bonus payments
  • various rebated fees and charges
  • cash or investments transferred between 2 Lifetime ISA accounts

When investors make payments by transfers of shares from a stocks and shares ISA into a Lifetime ISA:

  • the payment is the market value of the shares at the date of transfer
  • the amount transferred cannot be more than the annual Lifetime ISA payment limit

There are also additional details from ISA payments to consider for current year payments and qualifying additions to a Lifetime ISA.

Payments made by an investor to a Lifetime ISA can be:

  • qualifying additions that are current year payments made after 6 April which count towards the Lifetime ISA payment limit and will be eligible for a government bonus
  • a returned withdrawal after a failed first-time residential purchase
  • a defaulted Lifetime ISA payment

Qualifying investments

The rules for investments that managers can buy, make or hold (qualifying investments) in a Lifetime ISA are the same as in:

How Help to Buy ISA transfers into a Lifetime ISA

Any funds transferred from a Help to Buy ISA to a Lifetime ISA after 6 April 2018 count towards the annual Lifetime ISA limit.

Investors do not have to transfer their existing Help to Buy ISA when they open a Lifetime ISA.

Investors can save into both types of ISA but they can only use the government bonus from one account to buy their first home.

You must apply a 25% withdrawal charge when an investor claims a government bonus on their Help to Buy ISA and withdraws funds from their Lifetime ISA for a first residential purchase.

Claim government bonus for Lifetime ISAs

You must claim government bonuses from HMRC on behalf of an investor.

If HMRC rejects a bonus claim:

  • you will be notified directly with a reason why they have rejected the claim
  • you must inform the investor within 14 days following receipt of the notification

Investor’s then have 90 days to appeal to HMRC against the decision not to pay their government bonus. HMRC will notify the investor directly of its appeal decision.

If the investor’s appeal is successful, HMRC will tell you to claim the government bonus now due.

A claim period runs from the sixth day of a month to the fifth day of the next calendar month.

Find out what happens when an investor dies or is terminally ill.

Repaying incorrect government bonuses back to HMRC

Lifetime ISA managers, investors and any other individuals in receipt of the government bonus are jointly and severally liable for repaying incorrect bonuses back to HMRC.

HMRC has the power to recover a bonus paid in error. The investor’s assets can be used to legally deduct an incorrect government bonus from their account.

If you become aware of any errors within 6 years after the claim is made, including on behalf of investors, you must include the correction in the next government bonus claim due without delay.

The claim correction must include all payments, adjustments or repayments.

HMRC has a right to enquire into a claim or return within 12 months of its receipt, if they have reasonable grounds for believing an error has occurred. The Lifetime ISA manager will be notified.

Find out about transferring Lifetime ISAs to a new Lifetime ISA manager or another type of ISA.

Published 12 March 2020