HM Treasury Plans to Replace Lifetime ISA With First Time Buyer ISA

25th Jun 2026
HM Treasury plans to replace the Lifetime ISA with a new First Time Buyer ISA after concluding that the existing product is not working well for many savers and can expose account holders to penalties they do not fully understand. The consultation, published on 23 June 2026, proposes a home-buying account available to first-time buyers aged 18 and over, with no upper age limit. Cash and stocks and shares versions would be offered, while the government bonus would be paid when a qualifying property is purchased rather than added to the account during the saving period. Existing Lifetime ISAs will not be closed. People will still be able to open one until the replacement launches, and current holders will be allowed to keep contributing under the existing rules indefinitely. The new account will instead become the product offered to future first-time buyers once its launch date is confirmed. Treasury’s case for reform centres on the Lifetime ISA’s dual role as a house-purchase and retirement product, together with the 25% charge applied when money is withdrawn for a non-qualifying reason. The consultation says unauthorised withdrawal charges reached 8% of all accounts opened in 2024-25 and that more holders had lost part of their original savings than had used the account to purchase a home. A 2025 Treasury Select Committee report concluded that the product’s design was flawed, highlighting confusion around the withdrawal charge and the risk of savers choosing unsuitable investment strategies because the same account serves two separate purposes. HMRC research also found limited awareness of the withdrawal conditions among account holders. Financial difficulty was frequently cited by people taking money out early, meaning the penalty can reduce the saver’s own contributions as well as remove the government bonus. The proposed First Time Buyer ISA removes that withdrawal charge because the bonus would remain with the government until a purchase takes place. Savers could withdraw their own money before buying without surrendering part of their capital, although they would lose the bonus attached to those withdrawn contributions. A qualifying purchase would need to involve a regulated mortgage. Cash purchases and unregulated financing arrangements would not receive the government bonus, and the account would need to have been open for at least 12 months before a claim could be made. Several figures that will determine the product’s value remain undecided. Treasury has not set the annual subscription limit, the property price cap or the percentage used to calculate the bonus. Those details will be announced at a future fiscal event, leaving first-time buyers unable to compare the proposed account fully with the current Lifetime ISA, which offers a 25% bonus on contributions of up to £4,000 a year. The bonus would apply only to net contributions. Interest earned on cash and growth generated by investments would remain tax-free inside the ISA but would not increase the government payment. Treasury is also consulting on whether a lifetime cap should be placed on the total bonus received. Lifetime ISA funds could not be transferred into the replacement because those savings have already received a government bonus. Existing holders would, however, be allowed to use money from a Lifetime ISA and a First Time Buyer ISA towards the same property. They could hold both accounts but contribute to only one of them during a tax year. The new product would count towards the overall ISA allowance. A cash version would also fall within the £12,000 annual cash ISA ceiling due to apply to people under 65 from April 2027. Transfers from stocks and shares versions into cash-based ISAs would be restricted under the government’s wider anti-circumvention rules. Removing the withdrawal penalty addresses one of the most criticised features of the Lifetime ISA, but the replacement cannot be judged until Treasury publishes the bonus rate, contribution ceiling and house-price limit. A lower property cap could reduce its usefulness in expensive areas, while a weaker bonus or subscription limit could leave first-time buyers with less government support than the current product provides. More From Finance Monthly: HMRC Confirms 22% Tax on Cash Interest in Stocks and Shares ISAs