The Lifetime ISA is being replaced by the First Time Buyer ISA, expected to arrive around April 2028. The government has confirmed that existing Lifetime ISAs will continue as normal, with savers keeping their 25% bonus, up to £1,000 a year on the £4,000 maximum.
Existing Lifetime ISAs Continue
The government has said that if you already have a Lifetime ISA, it carries on as normal. You can keep paying in, and you keep getting your 25% bonus. Nothing changes for you overnight.
The replacement, called the First Time Buyer ISA, is not law yet. The government ran a consultation over the summer, so the details could still change.
New ISA Features and the Catch
The new account is aimed at people buying their first home, and the retirement option that comes with the Lifetime ISA is gone. There is no upper age limit, so you don't have to be under 40 to qualify. The 25% withdrawal charge, which currently applies if you take money out for anything other than a first home or retirement, disappears.
Under the new plan, the bonus would only be paid when you actually buy your first home, and only once the account has been open for at least a year. This differs from the current system, where the government tops up your savings as you go.
Impact on Savings Growth
One analysis worked through an example. Someone paying in £4,000 a year for five years into a Lifetime ISA, assuming 4% growth, would end up with around £28,165. The same saver in the new account would have around £27,532. The bonus rate for the new account is not yet known; it might stay at 25%, or it might change.
Transfers from a Lifetime ISA to the new account will not be allowed, because you've already received your bonus once and you can't get it twice. You will be able to use money from both accounts towards the same house purchase.
What Savers Should Consider
If you already have a Lifetime ISA, keep it. Nothing needs to change, and you shouldn't withdraw anything in a panic, as taking money out for the wrong reason still costs 25%. If you're between 18 and 39 and thinking of opening one, you still can; it's currently the only account that pays a bonus upfront.
The property price cap is £450,000, and it hasn't moved since 2017. In plenty of places, that won't stretch to a first home. This article is for general information purposes only and does not constitute financial advice. Details of the First Time Buyer ISA are still subject to consultation and legislation, and may change.
