The £1 Lifetime ISA trick that could save first-time buyers £30,000

Opening a Lifetime ISA before the end of this tax year, even with just £1, is a well-known Lifetime ISA trick that could be worth tens of thousands of pounds to first-time buyers and self-employed workers, because it starts the 12-month qualifying clock that must tick before you can use the account to buy a property. With the Lifetime ISA set to be replaced by a less generous product in April 2028, the window to take advantage of this deal is closing.

What is the £1 trick and why does it matter?

The rule that catches most people out is straightforward: your Lifetime ISA (LISA) must have been open for at least 12 months before you can use the funds, and the government bonus, to buy a property. If you wait until next tax year to open one, you are pushing that qualifying date back by a full year.

By opening a LISA now and depositing as little as £1, you lock in your eligibility today. That means you can make full contributions in the 2026/27 tax year, up to the £4,000 annual LISA limit, and still draw on those savings sooner than if you had waited. It is a small action with a disproportionately large payoff.

How the LISA works

A LISA is available to anyone aged between 18 and 39. You can save up to £4,000 per year into it, and the government adds a 25% bonus on top, worth up to £1,000 a year. That bonus is paid monthly, not as a lump sum at the end, which matters because it means the money goes to work in the market straight away.

The bonus does not count towards your wider ISA allowance. The total ISA allowance for 2026/27 is £20,000, so your £4,000 LISA contribution sits within that, but the £1,000 government top-up is free on top. You can use the money towards a first home worth up to £450,000 anywhere in the UK, or you can leave it invested until retirement.

To use a LISA for a property purchase, you must be a genuine first-time buyer who has never owned property in the UK or anywhere in the world. The property must be bought with a residential mortgage: buy-to-let mortgages do not qualify, and neither do private mortgages funded by a family member. You must intend to live there.

If you are buying as a couple and both of you are eligible first-time buyers, you can each use your own LISA, doubling the combined bonus you bring to the purchase.

Where the £30,000 figure actually comes from

The headline number reflects what happens when you invest consistently and let compounding do its job. Someone who puts the full £4,000 into a stocks and shares LISA every year, picks up the £1,000 government bonus each year, and achieves 7% annual growth would have around £30,768 after five years, £73,920 after ten years, and £134,443 after 15 years.

The critical point is that each annual £1,000 bonus is invested immediately. That means it earns returns on the returns from previous bonuses, year after year. This compounding effect is not a financial trick. It is simply what happens when a sum of money is given time to grow.

Why the clock is ticking: the April 2028 deadline

The LISA is being replaced. The government has confirmed it will launch a new First Time Buyer (FTB) ISA in April 2028. Existing LISA holders will still be able to deposit into and use their accounts after that date, but new accounts will be on the new terms.

The replacement product is expected to be less generous in a couple of important ways. First, the FTB ISA will not allow you to save towards retirement, which removes one of the most valuable and underused features of the current LISA. Second, and more significantly for long-term savers, the bonus is expected to be paid as a lump sum at the point of house purchase rather than monthly throughout the saving period.

That distinction matters more than it sounds. Under the LISA, a 15-year saver contributing £4,000 a year could accumulate around £134,443. Under the proposed FTB ISA, the same £4,000 over 15 years would grow to around £107,555 without a bonus, and adding a lump-sum bonus of £15,000 at the point of purchase gives roughly £122,555. That is nearly £12,000 less, purely because the bonus was not invested along the way. Compounding needs time and it needs the money in the account.

The self-employed angle

The LISA has always been quietly generous for self-employed people, and most do not realise it. Without an employer, self-employed workers get no pension contributions from anyone except themselves. Many are also reluctant to lock money into a pension until age 57 (rising from 55 in 2028) when income can be unpredictable.

The LISA offers a middle path. The 25% government bonus mirrors the basic-rate tax relief you would receive on a pension contribution, so the incentive is comparable. But unlike a pension, you can access the money earlier if you genuinely need to, subject to a withdrawal penalty. Income taken from a LISA in retirement is also tax-free, which a pension does not offer.

Hargreaves Lansdown has called for further reform, arguing that reducing the withdrawal penalty from 25% to 20% would make the LISA more attractive as a self-employed savings tool. They have also pushed for removing the age-40 limit on opening a LISA, noting that many people do not become self-employed until later in life and currently miss out entirely.

The withdrawal penalty, explained plainly

The 25% withdrawal penalty is often misunderstood. Because the government bonus is 25% of what you put in, withdrawing and paying 25% back does not simply return you to where you started. Martin Lewis has described the effective hit as a fine of 6.25% of your own money to the state.

This most commonly catches people out when they find a property they want to buy that costs more than £450,000. If the purchase price exceeds that cap, you cannot use the LISA for that transaction at all without triggering the penalty. Chancellor Rachel Reeves did not announce any immediate changes to the LISA in the November 2025 Budget, though she signalled a consultation on the replacement scheme is under way.

What to do before the tax year ends

Open a LISA as soon as possible, even if you can only put in a nominal sum. You can hold more than one LISA, but you can only pay into one in any given tax year. Once your account is open, your 12-month qualifying period begins. You can then build up contributions in 2026/27, receive the monthly bonuses, and have those funds invested and working for you.

If you are self-employed and have never seriously considered a LISA as part of your retirement or property planning, now is the time to look at it properly. The April 2028 deadline means the opportunity to open an account under the current, more generous structure is finite.

---

Verdict

The LISA is a straightforward product made more powerful by one simple timing move. Opening an account before this tax year ends, with whatever you can spare, starts the clock and preserves your access to a government bonus that could add up to £1,000 a year. For self-employed workers especially, it also offers a flexible, tax-efficient alternative to a pension. With a replacement scheme arriving in April 2028 that will almost certainly deliver less, acting now costs almost nothing and could be worth a very great deal.

Frequently asked questions

The LISA is not a complicated product, but the timing of when you open it makes a significant difference to what you can ultimately do with it.