You're saving for your first home and you've heard about the Lifetime ISA. A 25% government bonus on up to £4,000 a year — that's a free £1,000 every year you contribute. It sounds like a no-brainer. And for many first-time buyers, it is. But the answer changes significantly depending on whether your employer offers a pension match, what tax rate you pay, and what the property you're buying is likely to cost.
The quick answer for most people
Priority order: employer match first, then LISA, then extra pension.
Employer pension match — always capture the full amount first
If your employer matches pension contributions, that's an immediate 50–100% return. Nothing — not the LISA bonus, not a stocks ISA, nothing — beats free money from your employer. Get the full match before contributing to a LISA.
Free money — takes priority over every other savings decisionLISA — up to £4,000/year for the 25% bonus (£1,000 free)
For basic-rate taxpayers buying a first home under £450,000, the LISA's 25% bonus is better than the 20% pension relief you'd get on extra pension contributions. Max this before adding extra voluntary pension contributions beyond the employer match.
25% bonus — better than basic-rate pension relief for first-time buyersExtra pension contributions — especially if you pay 40% tax
Higher-rate taxpayers get 40% pension relief — that beats the LISA's 25% bonus. If you pay 40% tax, extra pension contributions should come before or alongside the LISA. Basic-rate taxpayers should prioritise the LISA first.
40% relief beats LISA for higher-rate taxpayersStocks & shares ISA for any additional savings
Once the LISA allowance is used (£4,000/year) and the pension match is captured, a stocks & shares ISA is the next best vehicle for tax-free long-term growth. Total ISA allowance is £20,000; LISA counts within this.
Tax-free growth — no annual bonus but full flexibilityLISA vs pension — the key differences
Both give you free money. They work very differently.
Lifetime ISA 25% bonus
- ✓25% government bonus on up to £4,000/year
- ✓Use for first home purchase (under £450,000)
- ✓Or withdraw tax-free from age 60 for retirement
- ✓Growth is tax-free inside the LISA
- ✗25% withdrawal penalty if used for anything else
- ✗Must open before age 40; must have held 12 months before using for a house
- ✗Property must cost £450,000 or less — excludes many London buyers
- ✗No employer contributions possible
Pension 20–45% relief
- ✓Employer match — potentially doubles your contribution
- ✓40% relief if you're a higher-rate taxpayer
- ✓Annual allowance of £60,000 — far higher than LISA
- ✓Can't be used for a house purchase
- ✗Locked until age 57 (from 2028)
- ✗25% tax-free lump sum; rest taxed as income on withdrawal
- ~Basic-rate relief (20%) is slightly less than LISA bonus for house buyers
The trap nobody warns you about
The LISA withdrawal penalty is worse than it looks.
If you withdraw from a LISA for any reason other than buying a qualifying first home or reaching age 60 (or terminal illness), you face a 25% penalty on the full withdrawal. That sounds like you just lose the bonus — but the maths is slightly worse than that.
You put in £100. The government adds £25. You now have £125. If you withdraw and pay the 25% penalty, that's £31.25 deducted — leaving you with £93.75. You lose not just the bonus but also £6.25 of your own money. The LISA is excellent if used correctly. It is actively harmful if you withdraw early for the wrong reasons — treat it as locked money until you complete your purchase.
Your situation
Same goal, different answers.
Basic-rate taxpayer, employer matches pension to 5%, buying under £450k
Capture the full employer pension match first. Then max the LISA (£4,000/year, £1,000 bonus). Any additional savings go to a stocks & shares ISA. Don't put extra beyond the match into pension ahead of the LISA.
Employer match → LISA → stocks ISAHigher-rate taxpayer, no employer match
40% pension relief (40p back for every 60p you put in) beats the LISA's 25% bonus mathematically. But the LISA still offers flexibility — a house purchase in the near term, or tax-free retirement income if unused. Both are worth using.
LISA and pension — 40% relief makes pension competitive; do both if you canBuying in London, where properties often exceed £450,000
The LISA property price cap is £450,000. If your target property is likely to exceed this, opening a LISA for the house purchase may be pointless. You could still open one for retirement use from age 60 — but don't rely on it for your deposit.
Check your target price — LISA may not be usable for the housePlanning to buy in less than 12 months
The LISA must be open for at least 12 months before you can use it toward a property purchase. If you're buying soon, open a LISA now anyway — the clock starts ticking. Don't wait until you find a property.
Open the LISA now — start the 12-month clock immediatelyIf you're buying with a partner and you're both first-time buyers, you can each open a LISA and each receive up to £1,000/year in government bonuses — £2,000 combined. You both need to be under 40 to open one, and the purchase qualifies even if only one of you uses a LISA (the other can still have one for retirement).
What's the right split for your specific situation?
Franky asks about your tax rate, employer match, buying timeline, and target property price — then gives you a clear, personalised priority order.
Talk to Franky →