The Lifetime ISA Is Being Replaced — What First-Time Buyers Need to Know

If you're saving for your first home using a Lifetime ISA, or thinking about opening one, hold off before assuming it'll look the same next year. HM Treasury has opened a consultation on a brand new First Time Buyer ISA (FTB ISA), designed to replace the LISA because — in the government's own words — the current product isn't working well for many savers.

Why the LISA is being scrapped

The HMT consultation, published 23 June 2026, points to the LISA's biggest flaw: its 25% withdrawal penalty. If you save into a LISA and then withdraw the money for anything other than buying your first home or after age 60, you lose not just the government's 25% bonus but an extra slice of your own savings too — a penalty that has caught out thousands of people who changed circumstances, according to Which?.

How the FTB ISA would work differently

Three changes stand out, per Mortgage Solutions and MoneySavingExpert:

• No withdrawal charge. Take your money out for any reason and you simply forfeit the government bonus on that portion — you don't lose any of your own savings.
• Bonus paid at completion, not while saving. The bonus would be paid when you exchange contracts on a property, with 90 days to complete the purchase, rather than being topped up into your account annually as you save.
• No upper age limit. The LISA currently can't be opened by anyone over 39; the FTB ISA would scrap that limit entirely, reflecting that the average first-time buyer age keeps rising.

Contribution limits, the property price cap, and the exact bonus rate are still to be confirmed at a future fiscal event — the consultation itself runs until 17 August 2026.

What should you do right now?

• If you already hold a LISA, keep contributing as normal — existing rules still apply until any transition is confirmed, and the annual £4,000 allowance and 25% government bonus remain in place for now.
• Don't withdraw from an existing LISA for a non-qualifying reason while waiting for the FTB ISA — you'd still pay the current 25% penalty under today's rules.
• If you're not yet saving for a first home, there's no rush to open a LISA now given the pending change — but also no harm, since a well-timed transition mechanism is expected to be part of the final design.
• Keep an eye on the consultation outcome, expected after 17 August 2026, before making large one-off contributions.
• If you're over 39 and were locked out of a LISA, the FTB ISA may open a door that wasn't previously available to you.

How other countries help first-time buyers save

Government-assisted saving schemes for housing exist elsewhere too. Canada's First Home Savings Account lets first-time buyers contribute up to CAD $8,000 a year tax-free specifically for a home purchase. In the United States, first-time buyers can withdraw up to $10,000 from a traditional or Roth IRA penalty-free for a home purchase, though income tax may still apply. Australia's First Home Super Saver Scheme allows voluntary pension contributions to be withdrawn later for a deposit.

Key Numbers

• 25%: current LISA withdrawal penalty on non-qualifying withdrawals
• 39: current upper age limit to open a LISA, which the FTB ISA would remove
• 90 days: proposed window to complete a purchase after claiming the FTB ISA bonus
• 17 August 2026: consultation deadline

Sources

• gov.uk: First Time Buyer ISA consultation
• Which?: What the ISA shake-up means for first-time buyers
• Mortgage Solutions: Government proposes FTB ISA
• MoneySavingExpert: Lifetime ISA replacement plans

Educational content only — not financial advice.