The UK Government has confirmed a new First Time Buyer ISA that will replace the existing Lifetime ISA (LISA) for first-time home buyers. The announcement, made by the Treasury, introduces a savings account designed specifically for purchasing a first home, with a government bonus paid at the point of exchange.
Key Differences from Lifetime ISA
Unlike the Lifetime ISA, which allows savers to use funds for either a first home or retirement (accessible from age 60), the First Time Buyer ISA will be exclusively for buying a first home. Savers will no longer face the 25% penalty for early withdrawals that applies to LISAs when funds are used for non-qualifying purposes. Under the new scheme, the bonus will be paid at exchange, eliminating the risk of losing the bonus or part of the original savings.
Current LISA savers can contribute up to £4,000 per tax year and receive a 25% government bonus, up to £1,000 annually. The bonus rate and property price threshold for the new ISA have not yet been announced. The existing LISA cap of £450,000 on property value has faced criticism for not keeping pace with rising house prices since its 2017 launch.
Transition and Consultation
Existing Lifetime ISA holders will be able to keep their accounts open and continue using them. However, transfers from a LISA to the new First Time Buyer ISA will not be permitted. Help to Buy ISA holders will be able to transfer their savings into the new account. A public consultation is now open, seeking views on the First Time Buyer ISA, and will close in mid-August.
Rachael Griffin, tax and financial planning expert at Quilter, commented: “Thousands of savers have been charged for accessing their LISA for an unauthorised withdrawal, often because their financial circumstances changed unexpectedly and they needed to dip into their savings. Allowing people to access their money when needed, while still being incentivised to save towards a deposit for a first home, would be a much better design.”
Impact on First-Time Buyers
The new ISA aims to simplify the savings process for first-time buyers by removing the penalty risk and focusing solely on home purchases. Campaigners have long called for reforms to the Lifetime ISA, particularly regarding the property price threshold and penalty charges. The consultation will gather feedback on bonus levels and property limits, with further details expected later in the year.
