Transferring a Lifetime ISA to another provider

A Lifetime ISA can be moved to a different provider, but only into another Lifetime ISA. Nottingham Building Society puts the rule plainly: "You can only transfer your LISA to another LISA. Not to another ISA type."¹ Move the money anywhere else and it stops being a transfer and becomes a withdrawal, which triggers the 25% government withdrawal charge and loses the bonus.²

The transfer itself is arranged between the two providers, not by you taking the cash out. You start by opening a Lifetime ISA with the provider you want to move to and asking it to fetch the money. Because Lifetime ISAs sit outside the electronic ISA transfer service, the paperwork moves on paper, and most transfers take two to four weeks.³

The government bonus, worth 25% of what you pay in up to £1,000 a year, stays with the account when it moves properly.⁵ What changes is the provider, not the tax treatment.

A Lifetime ISA can only move into another Lifetime ISA

The rule is set by the scheme itself, not by individual providers. A Lifetime ISA qualifying individual may only make a qualifying addition to a single Lifetime ISA in a particular year, and the money is designed to stay inside the wrapper.⁸ You can only pay into one Lifetime ISA per tax year.⁹

That means the destination has to be another Lifetime ISA, whether cash or stocks and shares. The permitted transfers across the ISA family are cash ISA to cash ISA, stocks and shares ISA to cash ISA, cash ISA to stocks and shares ISA, and Lifetime ISA to Lifetime ISA.¹ Each type of ISA can be moved into the same type of ISA with another provider.¹⁰

If you are thinking about moving a Lifetime ISA into a different kind of ISA, the tax position changes completely. Bath Building Society warns that transferring a Lifetime ISA to a different type of ISA could lose the 25% bonus.¹¹ The government's own guidance is blunt: "You'll pay a 25% charge if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60."²

There is one exception worth knowing. If you die, your Lifetime ISA ends on the date of your death and there is no charge to withdraw the funds or assets from your account.²

Transferring without the 25% withdrawal charge

The 25% charge is the single biggest risk in any Lifetime ISA move, and it is avoidable. Skipton Building Society sets out the two paths: "You can transfer your Lifetime ISA into another Lifetime ISA without triggering the government withdrawal charge. However..." a move to a different ISA type is subject to the 25% government withdrawal charge.¹²

The charge is calculated on the amount transferred. Transact's key features document states that if you are transferring from a lifetime ISA, your ISA provider will normally apply a 25% charge on the amount transferred.¹³ The charge is not just a clawback of the bonus. The Financial Conduct Authority's scheme rules say the lifetime ISA government withdrawal charge recovers any lifetime ISA government bonus and any investment growth on that bonus plus an additional amount.¹⁴ In other words, on a withdrawal you can lose more than the government put in.

The charge also applies if you move a Lifetime ISA into a Help to Buy ISA. Government guidance confirms that if you transfer money from a Lifetime ISA to a Help to Buy ISA you will have to pay the 25% withdrawal charge.² Bath Building Society repeats the point.⁷

How to transfer: start with the new provider

The mechanics are the same as any other ISA transfer, with one difference: the new provider has to be a Lifetime ISA provider. Leeds Building Society states the general rule: "To transfer your ISA to a different provider, you'll need to use the new provider's transfer process."¹⁵

In practice the steps run like this:

1. Open a Lifetime ISA with the provider you want to move to.
2. Ask that provider for its Lifetime ISA transfer form.
3. Complete the form and return it to the new provider, which contacts your existing provider.
4. Your existing provider sends the money and the account history across.
5. The new provider invests or deposits the money and confirms the transfer.

Nutmeg describes the same process from the customer's side: go to the transfers section of your dashboard, fill out the LISA transfer form and post it to your existing provider.⁴ NS&I, which runs a Direct ISA, tells customers to contact the new provider, which will arrange the transfer.¹⁶

Do not close the old account yourself. Chip's guidance on cash ISAs is that if you withdraw the money yourself, you lose the tax-free allowance on the entire sum.¹⁷ The same principle applies to a Lifetime ISA, with the added 25% charge.

Transfer time: up to 30 days, outside the eISA service

Lifetime ISA transfers are slower than most ISA moves because they are not part of the electronic transfer service. Newcastle Building Society states that Lifetime ISAs are not currently part of the eISA transfer service, so any Lifetime ISA transfers must be completed via a paper transfer between your existing and new Lifetime ISA providers.³

That paper step explains the timescale. Nutmeg says most transfers usually take two to four weeks.⁴ Leeds Building Society gives a wider range, saying transfers typically take between seven and 30 days to complete, but some might take longer.¹⁵ Nationwide tells customers transferring another type of ISA in that it can take up to 30 days, and a later date can be requested.¹⁸

For comparison, ordinary cash ISA transfers are expected to be quicker. Newcastle states that your ISA transfer should take no longer than 15 days.¹⁹

If a transfer is dragging, the first step is to ask both providers where the paperwork is. If a provider has made an error, the Financial Ombudsman Service can look at complaints, and it has published a case study about an unexpected withdrawal charge when transferring money between different ISA types.²⁰

Full transfers, age limits and your annual allowance

Most Lifetime ISA transfers are full transfers. Nottingham Building Society's product information states that full transfers from a single Lifetime ISA provider are allowed.²¹ If you want to move only part of the balance, ask both providers first, because partial transfers are not standard across the market.

Age affects what you can do, but not as much as people assume. You can only open a Lifetime ISA between 18 and 39, but transfers are a different matter. AJ Bell states: "You can only open a Lifetime ISA if you're aged 18 to 39, but we also offer Lifetime ISA transfers for over 40s".²² AJ Bell's product page confirms transfers up to age 50.²³ You can keep paying in until you reach 50, and the annual limit is £4,000.⁷

The allowance treatment of a transfer depends on where the money comes from:

Hargreaves Lansdown states that transferring counts towards your Lifetime ISA allowance, but not your overall ISA allowance.²⁴ AJ Bell says transferring between Lifetime ISA providers will not affect your annual LISA allowance.²⁵ The distinction matters: a straight provider-to-provider Lifetime ISA move is allowance-neutral, while money arriving from another ISA type uses up part of your £4,000.²⁶

The overall ISA allowance is £20,000 across all the ISA accounts you hold, plus an additional £9,000 across all junior ISA accounts held in your child's name.²⁷

Lifetime ISAs alongside a Help to Buy ISA

A Help to Buy ISA can be moved into a Lifetime ISA, and this is one of the few transfers that brings a bonus with it. The Financial Ombudsman Service case study records that a customer could transfer an existing Help to Buy ISA into a Lifetime ISA and would receive the government bonus on the full amount transferred.²⁰ The same case study notes that the transfer would effectively backdate the Lifetime ISA, restarting the 12-month eligibility for withdrawing the money.²⁰

The direction matters. Government guidance states that you can transfer money from a Help to Buy ISA to a Lifetime ISA, but if you transfer money from a Lifetime ISA to a Help to Buy ISA you will have to pay the 25% withdrawal charge.² AJ Bell confirms that you have the option to transfer your Help to Buy ISA into a Lifetime ISA.²⁸

One catch: a Help to Buy ISA to Lifetime ISA transfer counts towards your £4,000 Lifetime ISA allowance for that tax year, though not your overall ISA allowance.⁷

Both accounts can be used towards a first home in some circumstances. Scope's guidance on Right to Buy and Right to Acquire notes that if you have a Help to Buy ISA or Lifetime ISA you can use it to pay a deposit through schemes including Right to Shared Ownership or Rent to Buy.²⁹ The Scottish Government's First Homes Fund guidance says you can use a Help to Buy ISA or Lifetime ISA towards your deposit.³⁰

Where the rules are heading

The Lifetime ISA has been open since April 2017, and the government has been reviewing how it fits with other retirement savings.³³ A Treasury Committee report concluded that cash Lifetime ISAs may not be the best way to save for retirement, but stocks and shares Lifetime ISAs can be a useful complementary retirement saving vehicle for some people including the self-employed.³⁴ The same report noted that LISA holders aged over 40 are not able to transfer their cash LISA to a stocks and shares LISA.³⁴

That last point is worth flagging for anyone over 40 planning a move: the restriction is on changing the type of Lifetime ISA, not on changing provider. A cash Lifetime ISA can still move to another provider's cash Lifetime ISA, and a stocks and shares Lifetime ISA can still move to another provider's stocks and shares Lifetime ISA.

Providers are required to disclose the annual subscription limits, the tax treatment of qualifying investments, the transfer process, eligibility for the government bonus, and the government withdrawal charge and the circumstances in which it might be incurred.³⁵ If a provider cannot explain those five things before you transfer, that is a reason to ask more questions before signing anything.

For anyone claiming Universal Credit, a Lifetime ISA is treated as capital, but 25% can be ignored if you are under 60, to cover the withdrawal of the government bonus.³⁶