A Lifetime ISA is an account which lets you save up to £4,000 a year with the government adding a 25% bonus. So if you save the maximum, that’s a tidy £1,000 in your pocket. In the investment world, a 25% return is pretty astounding.
I’m not going to go in-depth on the actual product here. There are lots of good mainstream places that you can search for and look at.
The focus in this article is for Muslims who are hesitating on whether a LISA is halal. We’re going to reveal when the LISA is halal and when it isn’t. We’re also going to reveal a hack that you’ll find very helpful.
That’s right – the LISA itself can be both haram or halal, depending on where you open one and what you put in it.
Don’t let that put you off though: it’s easy once you know what to look out for. Just follow our guide and you’ll be saving in your LISA in no time.
Let’s kick off with a key question.
Is the 25% Government bonus halal?
The key benefit of a LISA is the 25% government bonus. You must be wondering whether this is riba or haram for some other reason.
Basically, this isn’t like a standard commercial transaction where you get a return for your money. It’s a governmental scheme for very specific purposes (you can only withdraw the money penalty-free if you’re buying a home or retiring).
From a fiqhi perspective, it is seen as a gift.
In short, we’re fine on this front.
What else is problematic then?
The government bonus isn’t the tricky part. The tricky part is then understanding where to open a LISA.
The reason for that is because like a normal ISA, there are basically two types:
- Cash LISAs; and
- Stocks & shares LISAs.
These are unequivocally haram because they invariably pay interest on your cash. To be clear, we’re not talking about the 25% government bonus here. We’ve already said that’s fine.
What we’re talking about here is the bog standard cash LISA offered by the main banks and building societies. For example this one by Skipton Building Society.
If there happened to be a cash LISA that paid no interest, that would be fine.
I doubt you’ll find one though as the mainstream market will always want an interest return for depositing cash.
Check out my hack below though for how to find a no-interest LISA account.
Stocks & Shares LISAs
We’ve ruled out cash LISAs and we’re left with stocks & shares LISAs. These must be halal right? Well, it depends.
You see a stocks and shares LISA is a bit like opening a Just Eat account. But swap eating for investing.
In your Just Eat account, you can choose from lots of halal places, but there are also a lot of haram takeaways too. It’s the same with a stocks and shares LISA: you can choose from lots of halal companies to invest in, but there are loads of haram ones too.
The key point is this: so long as your stocks and shares LISA has halal investments within it, it’s halal for you. Same ruling for Just Eat by the way.
Here’s a (very) fancy graphic I drew to summarise.
Investing is scary though, I just wanted the 25%
I hear you. I’m going to give you a bit of a hack if you really don’t want to invest. It only works for £10,000 and under though and only with one provider.
But I’m also going to try and convince you that investing isn’t scary and you don’t need to be Warren Buffett.
The hack if you’re dead against investing is to open a LISA with AJ Bell, deposit cash, and don’t invest it.
Just leave it as a cash balance in the account. You’ll still get the government bonus but you won’t have had to invest.
The reason is that AJ Bell don’t pay interest on accounts with cash of £10,000 and below. See here.
Like I say, it’ll only work until your balance hits £10,000 but you can only do a maximum of £4,000 per year anyway so you should be good for at least 2.5 years.
If you do the above, you’ll get your 25% bonus which is a great return. But if you invest, you could be growing the total amount of cash via an investment.
Here’s why you shouldn’t be scared: if you go for an AJ Bell LISA or a Hargreaves Lansdown LISA, you’ll be able to select from a bunch of sharia-compliant funds.
If you don’t know what a fund is, it’s basically a basket of companies that have been pre-chosen by a specialist fund manager.
You’ll have to pay a small management fee to buy into the fund, but in return you’re getting the opportunity to benefit from the value of the fund increasing because the shares have hopefully done well.
By buying a fund, you’re also not having to worry about choosing which shares to buy yourself.
So you could deposit your £4,000, get your £1,000 bonus for year 1, and invest the lot in a sharia-compliant fund. If that fund price increases by say 8%, you’ll be up a further £400.
Obviously fund prices can go up and down so you are exposing yourself to loss too, but over time, the stock market tends to smooth out.
I’ve mentioned AJ Bell and Hargreaves Lansdown as I know they have decent Islamic options in their fund offerings. You can take a look at them in our halal investing comparison page.
LISAs are perfectly halal as long as you go for a stocks and shares LISA and you’re investing in halal stuff (or keeping it as cash only and attracting zero interest, e.g. with an AJ Bell stocks and shares LISA). Head over to our halal investment comparison page to see which sharia-compliant funds you can invest in and on what platform.