Is a Lifetime ISA halal?

Is the Lifetime ISA bonus halal?

The 25% Lifetime ISA bonus is halal because it’s part of a government scheme with a very specific purpose (buying a home or retiring). In fact, it’s seen as a gift, rather than a standard commercial transaction where you’re getting a return for your money. However, although the LISA bonus is halal, the Lifetime ISA itself might not be. It largely depends on whether you’re opting for a cash Lifetime ISA or a Stocks and Shares Lifetime ISA.

Is a Cash Lifetime ISA halal?

A Cash Lifetime ISA isn’t halal, since it pays tax-free interest on your balance and fixed returns are forbidden in Islam. The interest aspect of a Cash Lifetime ISA can be frustrating for Muslim first-time buyers, especially since the 25% government bonus itself is halal — the main advantage of using a Lifetime ISA in the first place! 

Is a Stocks and Shares Lifetime ISA halal?

Stocks and Shares Lifetime ISAs can sometimes be halal since they don’t pay interest. Instead of giving you a guaranteed rate of return, a Stocks and Shares LISA lets you invest in the stock market and potentially make money from those investments. Like any investment, there are no guarantees and the value of your portfolio can rise and fall over time.

However, whether or not your Stocks and Shares LISA is halal also depends on the companies you invest in. When you open a Stocks and Shares LISA, your provider will either invest your money in a specific fund or they’ll let you choose from a selection of funds yourself.

If your money is invested in funds made up of halal companies, the Stocks and Shares LISA itself will be halal. Unfortunately, most funds include haram investments, so you’ll need to find a sharīʿah-compliant Lifetime ISA before opening an account. 

What is a fund?

A fund is a collection of stocks that have been carefully chosen by a specialist fund manager. Instead of buying stocks in one company like Apple, Nike or Adobe for example, you could buy a fund that’s made up of lots of companies. Investing in funds is generally considered less risky than choosing individual stocks yourself since your portfolio will be more diverse and you’ll be less susceptible to market fluctuations. Keep in mind that the value of your investments can still rise and fall and you can still lose money, but your investments will usually perform better in the long term than if you were to keep your money in cash.

Learn more: Is a Lifetime ISA worth it?

Can you use a Stocks and Shares LISA for a house deposit?

You can absolutely use a Stocks and Shares LISA for your house deposit, but you’ll need to consider how soon you’d like to buy your property before taking the leap. Since your money will be invested rather than held in cash, your LISA balance can rise and fall over time. This is why it’s a good idea to use a Stocks and Shares LISA over a longer period of time, like 5-10 years. 

Learn more: Can you use two Lifetime ISAs to buy a house?

Sharia-compliant mortgages

Whether you save your deposit in a Lifetime ISA or Sharīʿah-compliant savings account, you’ll need a Sharīʿah-compliant mortgage too. Also known as a Muslim mortgage or Islamic mortgage, this is a type of financial product that won’t charge you any interest on your loan. 

Sharīʿah-compliant mortgages are usually home purchase plans or part buy, part rent schemes, as both these options allow you to buy a percentage of the property initially, before gradually working your way up to full ownership over time. 

Islamic mortgages can be complex and what works for one homebuyer might not work for another, so it’s a good idea to speak to an expert before making a decision. At Tembo, we advise on a range of Sharīʿah-compliant mortgages that are approved by either the Islamic Council of Europe or Amanah Advisors. To get started, create a free Tembo plan today.