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I believe my confusion is to how a LISA is seen with regards to the law, compared to the other ISA types.

For example, I know you can pay into both a Cash ISA and a S&S ISA up to a combined limit of £20,000. I have a S&S LISA and given I'm basic rate self employed this is where I would be putting life savings into, however I also want to contribute to a standard S&S ISA if legal as then I can withdraw without the penalty I'd get if I were to withdraw from a LISA for say, a holiday, or car.

This is especially so given I can only put in £4,000 per annum into the LISA but I want to maximize the tax savings from the other £16,000 I have in terms of ISA allowance. Since Cash ISA interest rates aren't too high, I'd be looking to put savings into both the S&S LISA and then a S&S ISA in the same tax year.

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Yes, this is fine:

You can save up to £20,000 in one type of account or split the allowance across some or all of the other types.

You can only pay £4,000 into your Lifetime ISA in a tax year

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Example You could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an innovative finance ISA and £4,000 in a Lifetime ISA in one tax year.

https://www.gov.uk/individual-savings-accounts/how-isas-work

You might want to consider whether it is wise to be fully invested in shares. If you're going to have to dip into them for things like holidays and a car, you're taking a risk that you might have to sell when the market is low.

As a basic rate taxpayer, you have a £1 000 personal savings allowance. You don't need to chase the tax break with a cash ISA, which often have poor rates. However, you should consider keeping some of your savings in cash, for example in a current account that pays decent interest on the balance.

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  • Thanks Richard. For anyone else also stumbling on this I also found the technical design note which has some good illustration: gov.uk/government/uploads/system/uploads/attachment_data/file/… Also, naturally my savings are diverse and I do have a fair amount allocated to standard savings in cash form. My S&S ISA will likely go into a fund rather than myself managing the shares; the finances of which can then be used as general purpose savings - neither a house nor car are critical for me.
    – Talisman
    Commented Oct 4, 2017 at 15:40

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