The Lifetime ISA is, well, an ISA – an individual savings account – which is a place to save where the taxman can't get his hands on the interest you make.

You can put up to £20,000 in ISAs in this tax year – and the money you put in your LISA will count towards that. So if you put £4,000 in the LISA this tax year – on top of which you'll get a 25% state bonus – you'll only be able to put £16,000 in other ISAs. The bonus you get doesn't count towards the year's ISA allowance.

How the tax works depends on whether you're saving or investing...

Cash LISAs

Interest is paid tax-free on the amount you contribute and on any state bonus that's already in the account when the interest is paid. You get to keep all of this interest, and the next year you'll earn interest on it too – this is known as compound interest.



Also, the interest earned doesn't count towards your personal savings allowance, so there's no impact on your ability to earn £1,000 a year of interest tax-free as a basic-rate taxpayer from other savings (£500 higher rate).

Investment LISAs

This is more complex as investment gains come in three main types: dividends, capital gains and bond interest. You might pay tax on these outside a LISA; but within a stocks & shares LISA you don't pay tax on any of them.