The Government plans to replace the Lifetime ISA with a new savings account designed solely to help first-time buyers purchase a home. But several important details, including the bonus and property price limit, have yet to be decided1.
First-time buyers could eventually be offered a new, more flexible way to save for a deposit under plans announced by HM Treasury.
The proposed First Time Buyer ISA would replace the Lifetime ISA for new savers and would be available to first-time buyers aged 18 or over, with no upper age limit1.
Unlike the Lifetime ISA, savers would not receive the Government bonus as money is paid into the account. Instead, the bonus would be added when the savings are used to purchase an eligible first home1.
The change means savers whose plans change could withdraw their own money without facing the current Lifetime ISA withdrawal charge1.
However, the First Time Buyer ISA is still at the consultation stage. The final bonus, savings allowance, property price cap and launch date have not yet been confirmed1.
Why is the Lifetime ISA being replaced?
The Lifetime ISA was launched in 2017 and can be used either to purchase a first home or to save for later life.
Savers can currently contribute up to £4,000 each tax year and receive a 25 per cent Government bonus, worth up to £1,000 annually. An account must normally be opened before the saver turns 40, and contributions can continue until the age of 502.
However, the account has attracted criticism because of the charge applied when money is withdrawn for a reason other than an eligible home purchase, retirement after age 60 or certain exceptional circumstances.
The standard 25 per cent withdrawal charge does more than recover the original Government bonus.
For example, someone paying £4,000 into a Lifetime ISA would receive a £1,000 bonus, taking the balance to £5,000 before any interest or investment movement. A 25 per cent charge on £5,000 would remove £1,250, leaving the saver with £3,750.
The saver would therefore lose the £1,000 bonus and £250 of the original amount contributed3.
The Treasury Committee has also raised concerns that the Lifetime ISA’s combined homebuying and retirement purposes make the product complicated and could result in some people selecting unsuitable savings or investment strategies4.
How would the new account work?
Under the Government’s current proposal, the new First Time Buyer ISA would be available to UK residents aged 18 and over who are saving to buy their first home.
There would be no upper age limit, reflecting the fact that many people are purchasing their first property later in life.
Savers would be able to choose between cash and stocks and shares versions of the account. Interest and eligible investment growth within the ISA would remain tax-free.
The Government bonus would be calculated using the net amount paid into the account, meaning total contributions after any previous withdrawals. It would not be calculated on interest or investment growth.
To qualify for the bonus:
- the account would need to have been open for at least 12 months;
- the property would need to be the saver’s first home and main residence;
- the purchase would need to be made with a regulated mortgage; and
- the property would need to fall within the scheme’s price limit.
Cash buyers and those purchasing using unregulated financing arrangements would not qualify for the bonus1.
Would there still be a 25 per cent bonus?
That has not yet been decided.
The Government is consulting on the relationship between three important elements of the scheme:
- the amount someone can save each year;
- the percentage bonus paid by the Government; and
- the maximum eligible property price.
The current Lifetime ISA offers a 25 per cent bonus on contributions of up to £4,000 a year and permits purchases costing up to £450,000 anywhere in the UK.
The new First Time Buyer ISA could use different figures. The consultation suggests, for example, that a lower annual savings allowance or property price cap could potentially support a higher percentage bonus.
No final decision has been announced, so prospective buyers should not assume that the existing £4,000 allowance, 25 per cent bonus or £450,000 property limit will be retained.
What happens to existing Lifetime ISAs?
People who already hold a Lifetime ISA will not be required to close it.
The Government says existing holders will be able to continue saving into their Lifetime ISA under the current rules indefinitely.
They would also be able to open a new First Time Buyer ISA and use funds from both accounts towards the same eligible property purchase. However, they would only be able to contribute to either a Lifetime ISA or a First Time Buyer ISA within the same tax year, rather than paying into both.
Lifetime ISA funds could not be transferred directly into the new account because the saver will already have received a Government bonus on those contributions.
Should first-time buyers stop paying into a Lifetime ISA?
Not necessarily.
The replacement account has not yet launched and some of its most important features remain undecided. A Lifetime ISA may continue to be useful for an eligible person who understands its restrictions and expects to purchase a qualifying property.
However, anyone considering opening or contributing to a Lifetime ISA should understand the withdrawal charge, the £450,000 property limit and the requirement for the account to have been open for at least 12 months before it can normally be used for a first-home purchase2.
Savers should also consider whether they may need access to the money for another purpose and whether a cash or stocks and shares account is appropriate for their expected buying timescale.
Investments can fall as well as rise, which means someone using a stocks and shares ISA could receive back less than they invested, particularly if they need to withdraw the money over a relatively short period.
The broker’s view
The proposed First Time Buyer ISA could remove one of the most controversial aspects of the current Lifetime ISA by allowing savers to access their own contributions without a withdrawal penalty if their circumstances change.
Removing the upper age limit could also make Government-supported deposit saving available to a wider group of aspiring homeowners.
However, the success of the scheme is likely to depend on the eventual bonus, annual allowance and property price cap.
The current £450,000 Lifetime ISA limit can already present difficulties in higher-priced areas. Until the final rules are published, buyers should avoid making long-term plans based on the assumption that the limit will increase or that the new account will be more generous.
The Government consultation closes on 18 August 2026. The final design and implementation timetable will be confirmed following the consultation process.
Saving a deposit is only one part of preparing to purchase a home. Prospective buyers may also benefit from reviewing their likely mortgage affordability, credit commitments, purchase costs and available deposit options before beginning their property search.
Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
There may be a fee for mortgage advice. The precise amount of the fee will depend on your circumstances.
Think carefully before securing other debts against your home/property.
The FCA does not regulate some forms of Buy to Lets.
All the information in this article is correct as of the publish date 30th July 2026. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.
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References:
- HM Treasury (2026). First Time Buyer ISA consultation. [online] GOV.UK. Available at: https://www.gov.uk/government/consultations/first-time-buyer-isa-consultation [Accessed 28 July 2026].
- Government Digital Service (2017). Lifetime ISA. [online] GOV.UK. Available at: https://www.gov.uk/lifetime-isa/overview [Accessed 28 July 2026].
- Government Digital Service (2017). Lifetime ISA. [online] GOV.UK. Available at: https://www.gov.uk/lifetime-isa/withdrawing-money-from-your-lifetime-isa [Accessed 28 July 2026].
- Parliament.uk. (2025). ‘Complex’ Lifetime ISA increases risk of poor financial decisions – Committees – UK Parliament. [online] Available at: https://committees.parliament.uk/work/8789/lifetime-isa/news/208057/complex-lifetime-isa-increases-risk-of-poor-financial-decisions/ [Accessed 28 July 2026].
