What is happening to the Lifetime ISA and what is the proposed First Time Buyer ISA?

What is a Lifetime ISA and how does it currently work?

A Lifetime ISA is a tax-free savings account designed to help you save for your first home or for later life.

If you are aged between 18 to 39 and are a UK resident, you can contribute up to £4,000 to a LISA in each tax year. The Government adds a 25% bonus on your contributions, up to £1,000 per year. The £4,000 LISA limit forms part of your overall annual ISA allowance.

To use a LISA to buy your first home, the property must generally cost £450,000 or less, the account must have been open for at least 12 months and you must be buying with a mortgage. Your LISA provider will pay the funds directly to your conveyancer to use towards the purchase.

You can use a LISA when buying alone or jointly with someone else, provided the relevant conditions are met.

If you withdraw money for a reason that does not meet the LISA rules, you will generally pay a 25% withdrawal charge. This can mean losing some of your own savings as well as the Government bonus, so you should check that you meet the requirements before relying on the funds for your purchase.

Why is the Government proposing to replace the Lifetime ISA?

The Government considers the LISA too complicated, particularly its withdrawal rules. The 25% charge can result in savers losing some of their own money when making a withdrawal that is not authorised under the scheme.

The consultation reported that 8% of LISA accounts opened in 2024–25 had an unauthorised withdrawal. The proposed replacement is intended to be simpler and focused solely on helping people buy their first home, rather than also operating as a retirement savings product.

What is the proposed First Time Buyer ISA?

The proposed FTB ISA would help people save specifically for their first home. Unlike the current LISA, it would be available to first-time buyers aged 18 or over, with no upper age limit.

The proposals include both cash and stocks and shares options, with any interest or investment growth remaining tax-free.

The Government bonus would work differently. Instead of being added as you save, it would be claimed when you are ready to buy and paid towards the purchase. The Government has not yet confirmed the bonus amount, annual contribution limit or maximum property value.

Would the new ISA have a withdrawal charge?

Under the proposals, the FTB ISA would not have a withdrawal charge. This would give savers greater flexibility if their plans changed.

What would a conveyancer need to do?

The proposed scheme would require the conveyancer to confirm that the buyer and property meet the conditions for the Government bonus.

The conveyancer would complete a Conveyancer Declaration Form, while the buyer would complete an Investor Declaration Form confirming their eligibility. The ISA provider would use these declarations to claim the bonus from HMRC and arrange for it to be paid towards the purchase.

The account would need to have been open for at least 12 months before the bonus could be claimed. You should therefore tell your conveyancer at an early stage if you intend to use an FTB ISA towards your purchase.

What would happen to existing Lifetime ISAs?

Existing LISA holders can continue saving into their accounts under the current rules. The proposed FTB ISA would not automatically replace or close existing LISAs.

The Government has not yet confirmed how the new FTB ISA would interact with existing LISAs.

How do the current and proposed ISAs compare?

What should you do if you are saving for your first home?

There is no need to delay your plans simply because the FTB ISA has been proposed. In the meantime, you should:

• Check your existing savings account. If you have a LISA, the current requirements continue to apply, including the 12-month period, £450,000 property price cap and withdrawal charge.

• Do not assume the proposed FTB ISA is available yet. Remember that the proposed FTB ISA is not yet available. Although the consultation has closed, the Government has not confirmed the final product or its launch date.

Tell your conveyancer about your ISA savings early. If you intend to use a LISA, your conveyancer will need to make sure the relevant requirements are met. Under the proposed scheme, the conveyancer would also confirm eligibility before the bonus is released.

How can VWV help?

If you are buying your first home and intend to use a Lifetime ISA, tell your conveyancer as early as possible. VWV’s Residential Property team can advise you on the conveyancing requirements and documents needed to use eligible ISA savings towards your purchase.

If you need legal support with a first-time buyer purchase or have questions about using a Lifetime ISA, please contact Oliveen Elliott in our Residential Property team on (0)1923 919 318 or at oelliott@vwv.co.uk.