CEO, The Savvy Investor Limited · Investment Educator
Published: 24 June 2026 · Reading time: 7 minutes
⚠️ Important: This article provides educational information for UK residents and is not personalised financial advice. It explains a government consultation that is not yet law. ISA rules are based on current 2026/27 legislation and proposals that may change. Consider speaking to an FCA-authorised adviser before making decisions about your savings.
The Lifetime ISA is on its way out. On 23 June 2026 the government published a consultation on a new First Time Buyer ISA that will, in its own words, be offered “in place of the Lifetime ISA” once it is available. It is the clearest signal yet that the LISA, launched in 2017 and criticised almost ever since, is being redesigned from the ground up. If you hold a Lifetime ISA, or you were about to open one, here is what has actually been announced, what is still undecided, and what it means for you.
The short version
- On 23 June 2026 HM Treasury published a consultation on a new First Time Buyer ISA, to be offered in place of the Lifetime ISA.
- Reported coverage points to a launch around April 2028. The consultation runs until 17 August 2026.
- What is proposed: cash and stocks and shares versions; the bonus paid when you buy your home rather than monthly; no age-40 opening limit; and no 25% penalty for taking the money out for something else (you simply do not get the bonus).
- What is still open: the bonus rate, the property price cap, and the annual contribution limit.
- If you already hold a Lifetime ISA, nothing changes for you now. You keep it, keep the bonus, and the current rules still apply.
- The proposed replacement is for first homes only. The LISA’s retirement-from-60 use is not being carried into the new product.
What the government announced
The Lifetime ISA was always two products wearing one wrapper: a first-home savings account and a retirement pot. Both came with a 25% government bonus, but also with rules that aged badly. The 25% withdrawal charge on any non-qualifying withdrawal takes back more than the bonus, costing you 6.25% of your own money. The £450,000 property price cap has been frozen since 2017, which increasingly shuts out buyers in London and the South East, the very places where help is most needed. And you have to open one before your 40th birthday. The Treasury Select Committee went as far as calling the LISA “not fit for purpose”.
The First Time Buyer ISA is the proposed answer. The consultation, open until 17 August 2026, sets out a streamlined product aimed squarely at first-time buyers, and confirms that “once available this new product will be offered in place of the Lifetime ISA”. Reported coverage points to a launch around April 2028, so this is a long runway rather than an overnight switch.
How the First Time Buyer ISA would differ from the LISA
On the detail published so far, the new product keeps what worked and removes the traps. Here is how the two compare, with the new product’s features shown as proposed rather than final.
| Feature | Lifetime ISA (current) | First Time Buyer ISA (proposed) |
|---|---|---|
| Who can open it | Ages 18 to 39 only | No upper age limit |
| When the bonus is paid | Monthly, on your contributions | At the point you buy your home |
| Penalty for other withdrawals | 25% charge (a 6.25% loss on your own money) | None; the bonus is simply not paid |
| Account types | Cash or stocks and shares | Cash or stocks and shares |
| Retirement use | Yes, tax-free from age 60 | No; first home only |
| Transfer in a Help to Buy ISA | Yes | Yes |
The two biggest changes are the timing of the bonus and the removal of the penalty. Paying the bonus at the point of purchase, rather than monthly into the account, returns the design to the older Help to Buy ISA model and means the government only pays out when a home is actually bought. Dropping the 25% charge removes the single feature that caused the most harm, the one that quietly punished savers who needed their money back for an emergency. The trade-off is that the new product drops the retirement option, so it is a first-home tool only.
What is still up for consultation
Three of the most important numbers are not yet settled, and they are the ones that will decide whether the replacement is more generous than the LISA or simply tidier.
- The bonus rate. The LISA pays 25%. The consultation does not commit to a figure for the new product, so we cannot yet say whether savers will get more, less, or the same.
- The property price cap. The LISA’s cap is £450,000, frozen since 2017. The new product is expected to keep a cap, but the level has not been confirmed. Whether it is raised, regionalised, or left flat is the question that matters most to buyers in expensive areas.
- The annual contribution limit. The LISA lets you pay in up to £4,000 a year within the overall £20,000 ISA allowance. The new limit is open for consultation.
Until those three land, any verdict on the First Time Buyer ISA is provisional. The shape is sensible; the generosity is unknown.
If you already have a Lifetime ISA
The most important point for existing savers is the calmest one: nothing changes for you right now. Your Lifetime ISA stays open, you can carry on paying in up to £4,000 a year, you keep earning the 25% bonus, and both uses, a first home up to £450,000 and tax-free access from age 60, continue under the current rules. Any bonuses you have already received are yours.
The consultation does not propose letting existing LISA holders move their savings into the new product, so there is nothing you need to do and nothing to switch. If you want a full refresher on how your LISA works while it remains in place, our complete Lifetime ISA guide covers the bonus, the penalty and the £450,000 cap in detail.
If you were about to open a LISA
The Lifetime ISA is still open to new savers for now, and with a launch for the replacement not expected until around 2028, opening one today still captures the 25% bonus in the meantime. You will not be forced to move when the new product arrives. The questions worth thinking through are the same ones that have always applied to the LISA: are you confident of buying a first home at £450,000 or less, and are you comfortable that the money is for a home or for retirement from 60, given the penalty on other withdrawals.
If your main goal is retirement rather than a first home, the decision is unchanged by this announcement: for most employed and higher-rate taxpayers a pension still tends to beat a LISA, a comparison we set out in full in our ISA versus SIPP guide. None of this is a recommendation; it depends on your own circumstances.
The timeline
- 23 June 2026: the First Time Buyer ISA consultation is published.
- 17 August 2026: the consultation closes to responses.
- Later in 2026 and beyond: the government publishes its response and the final design, including the bonus rate and price cap.
- Around April 2028 (reported target): the new product becomes available, offered in place of the Lifetime ISA.
Frequently asked questions
Is the Lifetime ISA being scrapped?
Not immediately. The government has published a consultation on a First Time Buyer ISA that would, in time, replace it, with a reported target of around April 2028. Existing Lifetime ISAs are not affected: you keep yours and the current rules still apply.
Will I lose my government bonus?
No. Bonuses you have already earned are yours, and you continue to earn the 25% bonus on new contributions while your Lifetime ISA remains open under the current rules.
Can I open the First Time Buyer ISA now?
No. It is only a consultation at this stage, with a reported launch target of around April 2028. For now, the Lifetime ISA is the product available to new first-time-buyer savers.
Should I still open a Lifetime ISA?
The LISA remains open and still pays the 25% bonus, so for some first-time buyers it is still worth using in the meantime. Whether it suits you depends on your plans, in particular the £450,000 cap and the penalty on non-qualifying withdrawals. This is general information, not advice.
Does this change the retirement use of a Lifetime ISA?
The proposed replacement is for first homes only, so the retirement route is not being carried into the new product. Your existing Lifetime ISA keeps its tax-free access from age 60 under the current rules.
The Savvy Investor’s take
The Lifetime ISA’s flaws were never a secret. The 25% charge punished savers for needing their own money back, and the frozen £450,000 cap quietly excluded the buyers it was meant to help. A first-home product that pays the bonus at purchase, scraps the penalty and drops the age limit is a sensible redesign on paper.
The catch is that the numbers that decide everything, the bonus rate and the price cap, are exactly the ones still left open. Until they land, we cannot say whether this is a more generous deal or just a simpler one. For now the practical message is calm: if you hold a LISA, keep it; if you were about to open one, you still can; and watch for the consultation response before drawing conclusions.
This article is general information about a government consultation and is not financial advice. The First Time Buyer ISA is a proposal, not law, and its features may change. Whether a Lifetime ISA or any savings product suits you depends on your own circumstances. For regulated advice, speak to a financial adviser authorised by the Financial Conduct Authority. Savvy Investor Guide is not authorised or regulated by the FCA.
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