Lifetime ISA calculator — methodology

The bonus is a rate on a contribution. The charge is a rate on a withdrawal.

Both are 25.00% today. They are applied to different amounts, so they do not cancel:

eligible payment   = min(payment, annual limit)
bonus              = min(eligible payment × bonus rate, maximum bonus)
in the account     = eligible payment + bonus
charge             = withdrawal × withdrawal charge rate
reaches you        = withdrawal − charge

Substituting one into the other is the whole page. A payment C becomes C × (1 + b), and a charged withdrawal of all of it returns C × (1 + b) × (1 − c). Setting b to 25.00% and c to 25.00%, that product is less than one — which in pounds is:

£4,000 paid in
+ £1,000 bonus
= £5,000 in the account
− £1,250 charge
= £3,750 back

That is less than the £4,000 that went in. The charge does not merely reclaim the bonus — it is charged on a base that includes the bonus, so it reaches past it and into the saver’s own capital. Describing the charge as “the bonus is taken back” understates it, and describing it as a penalty on the government’s money describes the wrong money entirely.

The two rates are stored as separate figures in this site’s rules files rather than one being derived from the other, and that is not fastidiousness. The withdrawal charge was cut below the bonus rate for two tax years during the pandemic while the bonus stayed where it was, so a page that derived one from the other would have been wrong for both of those years — in the direction that overstates a penalty.

Both caps on the bonus are applied, and neither is assumed away

gov.uk publishes the annual payment limit, the bonus rate and the maximum bonus as three figures, because they are three independent policy levers. They reconcile today. This calculator applies the published maximum as a cap anyway, rather than reasoning that a capped payment times the rate can never exceed it.

The reasoning is about which way the arithmetic fails. A Treasury that raised the payment limit while holding the maximum bonus — an entirely ordinary thing to do — would make the uncapped form report a government bonus larger than the government pays, and a reader would plan around money they will not receive. The capped form fails the other way, which on this subject is the survivable direction.

Three ways out without a charge, and one hard edge

The charge applies to every withdrawal except three: a first home at or under the property price cap, any withdrawal from the access age onwards, and terminal illness. There is no hardship ground and no discretion.

first home      → charge-free if price ≤ property price cap, otherwise charged in full
from 60         → charge-free, whatever the money is for
terminal illness → charge-free
anything else   → charged at 25.00% of the whole withdrawal

The property cap is a comparison, not a taper. One pound above it and the entire withdrawal is charged — not the part above the cap, and not a proportion of it. The cap is measured on the purchase price rather than on the deposit or the mortgage, so a buyer whose deposit is a fraction of the price is still outside it if the price is.

The cap has not been raised since Lifetime ISAs were introduced in April 2017, and house prices have not stood still in that time. This page states the cap for each modelled year in the table below and tests it against the price the reader types, rather than characterising it. Whether it is comfortable or binding is a fact about where somebody is buying, and the reader knows that and the calculator does not.

The terminal illness ground carries a figure this site does not hold. It turns on a prognosis of less than a specified period to live. That period is a statutory condition rather than a rate, threshold or allowance, and it is not in packages/tax-core/src/rules/ — so the page describes the mechanic and quotes nothing. It is a candidate rules field, recorded here for the same reason the Junior ISA methodology records the parental settlement threshold: a page may not type a statutory figure that no rules file holds, and the alternative to writing that down is somebody eventually typing it.

Three age tests, which are not one age range

The commonest way to state these is as one age range for opening and one age for stopping, which merges two of the three and gets the second wrong for the reader most likely to be checking. The figures in the table further down are read from the rules file; what matters here is that they are three tests and not one.

may open      = minimum opening age ≤ age < maximum opening age
may pay in    = minimum opening age ≤ age < contribution end age
charge-free   = age ≥ access age

The second and third bounds are the first age at which something stops, which is how the rules file names them, so the comparisons are strict on that side rather than inclusive. Someone who opened an account at 30 and is now past the maximum opening age cannot open a new one and can still pay into the one they hold — the limit is on opening, not on holding, and conflating them tells a large group of readers that their account has closed.

The age field’s own bounds are the wrapper’s statutory domain rather than round numbers. The floor is the minimum opening age, because below it there is no Lifetime ISA for anybody. The ceiling is the access age — not the oldest a holder can be, but the last age at which any answer on the page changes, since every gate has opened by then.

The same contribution, into a pension instead

The claim this panel exists to test is the one most often made about the product: the 25.00% bonus beats a pension’s tax relief. On the same money it does not, and the page measures that rather than asserting it.

into a Lifetime ISA = payment + payment × bonus rate
into a pension      = payment ÷ (1 − relief at source rate)

The division is by 1 − rate rather than a multiplication by 1 + rate, because the relevant rate is measured against the gross figure — it is the tax that would have been paid on the money before it reached the pension. At the England, Wales and Northern Ireland relevant rate of 20.00%, £4,000 handed over buys £5,000 of pension — and the same £4,000 into a Lifetime ISA buys £5,000. The same amount, to the penny. A bonus quoted as a share of what you pay and relief quoted as a share of what lands are two descriptions of one uplift, which is why arguing about which percentage is bigger settles nothing.

The pension side is computed by tax-core rather than by this page: grossUpReliefAtSource reads the relevant rate from the region’s own rate schedule, and computePensionRelief differences two full tax computations for the relief above the basic rate. So the comparison agrees with the pension tax relief methodology by construction rather than by coincidence, and the National Insurance figure is a forward difference on the engine’s own employeeNI rather than a rate looked up here.

What differs is everything except the uplift. Relief above the basic rate has no Lifetime ISA equivalent; only a salary sacrifice reduces National Insurance; only a pension can receive an employer contribution, which for anyone with a match is usually the largest figure in the comparison and exists on one side of it only; a Lifetime ISA comes out wholly tax-free where 25.00% of a pension does; and a pension cannot buy a first home at any age. The page prices the first two, states the third and fourth, and does not pick between them.

A pension’s minimum access age is not quoted anywhere on this site. It is statutory and it is not held in the rules files, so the comparison describes the difference in access without claiming which of the two wrappers opens first. That is the second candidate rules field this page would use if it existed.

Figures, read from the rules files this calculator runs on

Every one of those nine is read from packages/tax-core/src/rules/. Six of them were not there when this page was first proposed, and the page was declined rather than built, because a figure absent from the rules files may not be typed into a page. That is what makes one file per April true, and the table above is what it buys.

Sources

• gov.uk — Lifetime ISAThe annual payment limit, the bonus rate and its cap, the three charge-free circumstances, the first home price cap, and all four age limits.
• gov.uk — Manage Lifetime ISA withdrawals and bonus paymentsThe withdrawal charge rate and the base it is applied to — the amount withdrawn, not the bonus. This is the source for the arithmetic the calculator leads on.
• gov.uk — Individual Savings Accounts (ISAs)The overall subscription limit a Lifetime ISA payment counts against, and the rule that only one Lifetime ISA may be paid into in a tax year.
• gov.uk — Tax on your private pension contributionsFor the comparison panel only. Relief at source and the rate it is given at come from the rate schedules through the engine; nothing about a pension is typed into the page.

Five things that change the answer and are not modelled

• Whether you are a first-time buyer at all. The charge-free home route has conditions beyond the price: never having owned a home anywhere in the world, the account having been open long enough, buying with a mortgage, and the withdrawal going through a conveyancer. The price cap is the condition that can be checked against a number, so it is the one this page checks.
• Growth. Nothing on this page is projected forward. There is no growth rate, no term and no future value, and the withdrawal charge is applied to money the reader states rather than to a pot somebody guessed at. What a sheltered pot does over a term is the stocks and shares ISA calculator, which carries the not-a-forecast disclosure this page has no need of.
• How much of an existing balance is growth. The “less than you paid in” figure is measured on this tax year’s payment and its bonus, where both ends are exact. A fund built up over years holds earlier bonuses and growth in a mix this page cannot see, and a charged withdrawal from a fund that has grown a great deal may still return more than went into it.
• Limits in future tax years. Every figure applies to the tax year selected. The cap, the rates and the ages all move by policy, and this site holds no figures for years the government has not published.
• Whether any of this is a good idea. This page computes; it does not advise. Whether a Lifetime ISA suits somebody, and whether a pension would suit them better, turns on an employer’s match, an age, a first home and a date the money is needed — several of which no calculator has.