HM Treasury is planning to replace the Lifetime ISA with a new First Time Purchase ISA after concluding that the existing product is not working well for many savers and could expose account holders to penalties they do not fully understand.
The discussions, published on 23 June 2026, suggest a home purchase account available to first-time buyers aged 18 and over, with no upper age limit. Versions of cash and stocks and shares will be offered, while a government bonus will be paid when a qualifying property is purchased rather than added to the account during savings.
Existing lifetime ISAs will not be closed. People will still be able to open one until the change is implemented, and current owners will be allowed to continue donating under the existing rules indefinitely. The new account will instead be a product offered to future first-time buyers once a launch date is confirmed.
The Treasury issue the Lifetime ISA's dual role switching facilities as a mortgage and retirement product, with a 25% charge applied when money is withdrawn for an inappropriate reason. Reports say unauthorized withdrawal charges will reach 8% of all accounts opened by 2024-25 and that more owners have lost half of their original savings than used the account to buy a home.
The Treasury Select Committee's 2025 report concluded that the product design was flawed, highlighting confusion over withdrawal charges and the risk of strategic savers choosing inappropriate investment strategies because the same account serves two different purposes.
HMRC research also found limited awareness of withdrawal conditions among account holders. Financial difficulties were often cited by people who took out the money early, meaning a penalty could reduce a saver's contributions and remove a government bonus.
The proposed First Time Buyer ISA removes that withdrawal fee because the bonus will stay in the government until the purchase is made. Savers can withdraw their money before buying without contributing part of their money, although they will lose the bonus associated with those withdrawn contributions.
An eligible purchase will need to involve a regulated mortgage. Fund purchases and unregulated financial programs will not receive a government bonus, and the account will need to be open for at least 12 months before a claim can be made.
Several figures that will determine the value of the product remain undecided. The Ministry of Finance has not set a limit for the year of subscription, the price of the property or the percentage used to calculate the bonus. Those details will be announced at a future financial event, leaving first-time buyers unable to compare the proposed account in full with the current Lifetime ISA, which offers a 25% bonus on contributions of up to £4,000 a year.
The bonus will only apply to total contributions. Interest earned on cash and growth generated by investments will remain tax-free within an ISA but will not increase government payments. The Department of Finance is also debating whether a lifetime cap should be included in the bonus amount received.
Lifetime ISA funds cannot be transferred because those saved have already received a government bonus. Existing owners, however, will be allowed to use Lifetime ISA and First Time Purchase ISA funds to the same destination. They can hold both accounts but contribute to only one during the tax year.
The new product will count towards the total ISA grant. The cash version will also fall within the £12,000 annual cash ISA limit for under-65s from April 2027. Transfers from stocks and share conversions to cash-based ISAs will be restricted under wider government anti-bribery rules.
Removing the withdrawal penalty is one of the most criticized features of the Lifetime ISA, but the change cannot be judged until the Treasury publishes the bonus rate, contribution limit and house price limit. A low property rating can limit its use in expensive areas, while a weak bonus or registration limit may leave first-time buyers with less government support than the current product offers.
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