Will the new ISA be nicer?

The Lifetime Isa is being scrapped, but will its replacement be fairer to first-time buyers, asks Paul Lewis.

A young boy with oversized black glasses, a red bow tie and a blue cardigan smiles at the camera with two thumbs up. He sits on a desk next to a pile of coins and a piggy bank.

Published: July 27, 2026 at 10:18 AM

The Lifetime Isa is being scrapped, but will its replacement be fairer to first-time buyers, asks Paul Lewis.

Ad

The Government has admitted that more people get fined for misusing the money in their Lifetime Isa than are obeying the rules by using it to buy a first home.

Because it "is not working well", it will be replaced with a new First Time Buyer Isa, possibly by 2028.

The Lifetime Isa (or Lisa) began in 2017. You can put in up to £4,000 a year, and the Government boosts the money put into one by 25%, up to a maximum subsidy of £1,000 a year.

The interest or dividends earned, and any capital growth, are entirely tax-free.

Invest your future with an Stocks and Shares ISA - Hargreaves Lansdown

You can either use the money to buy your first home or you can take it out anyway once you reach 60.

But as there is an upper age limit of 40 to open a Lisa, and 50 to pay into one, no one will be able to take the money as cash until 2037 at the earliest.

There is also an upper limit of £450,000 on the price of the house you buy. In many parts of London, and some other cities, it can be difficult for young people to find the starter home they need for that price, especially if they have – or plan to have – children.

If you break any of the rules, the Government fines you 25% of the whole amount you take out – taking back its bonus and up to 6.25% of your own savings.

It has now revealed that in 2024/5, 87,250 had used their Lisa to buy a home within the rules, but 129,200 had been fined for spending it on something else or buying a home above the limit.

The new First Time Buyer Isa, which will replace it, will have no withdrawal penalty or upper age limit on setting up or paying into it.

However, the 25% bonus will not be paid until the home is bought, so will not earn interest or dividends.

The Government has not revealed if the annual limit on savings or the maximum price of a home bought with it will change: those details will be announced by the Chancellor at a future Budget.

People who already have a Lisa or open one before it is replaced will be able to use it within the existing rules but not transfer the money into a new First Time Buyer Isa.

For more information, search gov.uk for "First Time Buyer Isa".

At the moment, the plans are still at the consultation stage; if you want to have your say, you’ll need to do so by 18 August 2026.

Request your FREE guide to equity release written by Paul Lewis

QUESTIONS?

Send any questions to Paul.Lewis@radiotimes.com.

Ad

Paul cannot answer you personally, but I will reflect them in his column.

Ad

Ad

Ad