The Lifetime ISA is set to be replaced by a new Government-backed First Time Buyer ISA designed to help those wanting to get onto the property ladder to save a deposit.
Around 314,600 savers have used the LISA to buy their first homes as of 2024/25. However, issues surrounding the account’s dual purpose, combined with withdrawal charges if money is taken out for the wrong reason, mean that the Government is planning to replace the accounts with a simpler product.
Why is the LISA being replaced?
The LISA is being replaced because the Government says it “is not working well” for many people. This is because it was designed with a dual purpose of saving for a property deposit or for retirement, which increases the risk of consumers picking unsuitable investment strategies, and the withdrawal charge, which applies when account holders take money out for any purpose other than to buy a home or fund retirement.
How will the new First-Time Buyer ISA work?
Unlike the Lifetime ISA, which can only be opened by those aged between 18 and 40, the new FTB ISA will be available to all first-time buyers aged 18 or over. The account will be solely for the purposes of buying a first home, and both stocks and shares and cash versions will be offered.
When will the government bonus be paid?
The FTB ISA, like the current Lifetime ISA, will include a Government bonus, but this will only be payable at the point the account holder withdraws their money to buy a property. The Government says that this means there will be no need for a withdrawal charge, and if a saver’s circumstances change, they should be able to take money out of the account without penalty.
However, it also means that savers won’t benefit from potential returns on the bonus as they currently do with the Lifetime ISA, where the bonus is added to your account as you save.
Will a property price cap apply?
Yes, as with the Lifetime ISA, property prices will be capped, but we don’t know yet at what level.
How much can I pay into the new FTB ISA?
This is yet to be confirmed, but any money paid in will count towards your £20,000 ISA allowance, with a cash FTB ISA limit also counting towards the £12,000 cash ISA limit for under-65s. The £12,000 cash ISA limit is due to come into effect next April.
Can I still open a LISA?
Until the new product is launched, first-time buyers can still open a LISA. Those who hold a LISA will be able to pay into their account in line with the existing rules indefinitely. Once the new account becomes available, transfers between LISAs and FTB ISAs won’t be allowed, but the proceeds from both accounts can be put towards the same property purchase. Help to Buy ISAs, however, can be transferred into the new FTB ISA.
When will the new FTB ISA be launched?
The proposals for the new ISA are currently being consulted on, with the consultation period due to finish on 17th August. No launch date for the new product has been announced yet, but it may possibly come into effect when the next Budget is announced in spring next year.
