Key takeaways
- The Treasury's June 2026 consultation sets out a First Time Buyer ISA open to anyone aged 18 and over, with no upper age limit and no 25% withdrawal charge.
- The subscription limit, the bonus rate and the property price cap are all marked "To be confirmed" at a future fiscal event. The Budget falls on 28 October 2026.
- A Lifetime ISA saver paying £4,000 a year for five years earns £5,000 of bonus on £20,000 of their own money, and gets £18,750 back if they withdraw it for anything else.
- The 25% charge costs 6.25% of your own contributions at every balance, from £62.50 on £1,000 paid in to £1,250 on £20,000.
- In 2025 to 2026, 154,100 savers paid £118,985,000 in withdrawal charges, against 99,750 who withdrew to buy a first home.
What the Lifetime ISA replacement confirms, and what it leaves blank
You want to know what the Lifetime ISA replacement is, when it arrives, and whether it pays you more. Two of those three have answers. The one that decides the money doesn't.
HM Treasury published a consultation on a First Time Buyer ISA, updated on 29 June 2026. It's direct about the plan: "Once available, this new product will be offered in place of the Lifetime ISA (LISA)." Responses closed on 18 August 2026. The reason given is the withdrawal charge. The consultation records unauthorised charges "reaching 8% of all accounts opened in 2024-25". It also states that "More LISA holders have lost a part of their original savings than have used it to purchase a house."
What the document confirms about the design is a short list. The account would be open to those "aged 18 and over", with "no upper age limit, recognising that the age at which a first home is bought is rising". The government bonus would be "paid at the point an individual makes a withdrawal for purchasing their first home", which the Treasury says "removes the need for a withdrawal charge". Cash and stocks and shares versions are both intended. The account would need to be open for a year before any bonus could be claimed.
The age rule is the biggest eligibility change. GOV.UK is unambiguous about the current one: "You must be 18 or over but under 40 to open a Lifetime ISA." The consultation's design table records the same limit as "Must be 18 to 40 to open an account, with no subscriptions allowed over 50". Removing the upper bound would open the new account to anyone still renting in their forties or fifties.
What it doesn't confirm is almost every figure a saver would want. In the Treasury's own words, "Subscription limits, property price caps and the level of the government bonus will be announced at a future fiscal event". The design table marks both the subscription limit and the price cap "To be confirmed". The next fiscal event is the Budget. The Chancellor's letter to the Treasury Committee of 31 July 2026 confirms it "will be held on 28 October 2026". No launch date has been published either. The consultation says only that the Treasury wants the product "available as soon as practically possible".
Until then the old rules stand. The consultation is explicit: "it will remain possible to open a LISA and LISA holders will be able to save into their LISA in line with the existing rules indefinitely." So the arithmetic below runs on the Lifetime ISA. It's the only one of the two with published numbers.
The bonus on £1,000, £2,000 and £4,000 a year, and what the charge takes back
Here's the whole trade in one table. A Lifetime ISA pays a 25% bonus on contributions of up to £4,000 a year, capped at £1,000 of bonus. It charges 25% on any withdrawal that isn't a first home, age 60 or terminal illness. The table assumes no interest and no growth, which is what GOV.UK's own worked example assumes.
| Paid in each year | Years | Your own money | Bonus at 25% | Pot | Back after a 25% charge | Shortfall |
|---|---|---|---|---|---|---|
| £1,000 | 1 | £1,000 | £250 | £1,250 | £937.50 | £62.50 |
| £1,000 | 3 | £3,000 | £750 | £3,750 | £2,812.50 | £187.50 |
| £1,000 | 5 | £5,000 | £1,250 | £6,250 | £4,687.50 | £312.50 |
| £2,000 | 1 | £2,000 | £500 | £2,500 | £1,875 | £125 |
| £2,000 | 3 | £6,000 | £1,500 | £7,500 | £5,625 | £375 |
| £2,000 | 5 | £10,000 | £2,500 | £12,500 | £9,375 | £625 |
| £4,000 | 1 | £4,000 | £1,000 | £5,000 | £3,750 | £250 |
| £4,000 | 3 | £12,000 | £3,000 | £15,000 | £11,250 | £750 |
| £4,000 | 5 | £20,000 | £5,000 | £25,000 | £18,750 | £1,250 |
Read the last two columns together and you have the product's whole design. Pay in £4,000 a year for five years and the bonus is £5,000 on £20,000 of your own money. Need that money for something else and £18,750 comes back, which is £1,250 less than you paid in.
The bonus column has a ceiling the table doesn't reach. Payments stop at 50, and the consultation puts the lifetime total at £128,000 of subscriptions on that basis. It also sets the £4,000 inside the wider allowance, which is £20,000 for the 2026 to 2027 tax year, so the Lifetime ISA competes with every other ISA you hold rather than sitting alongside them. The ISA rules on flexible ISAs and transfers explain how the rest of that allowance behaves.
Why the charge costs 6.25% of your own money at every balance
The 25% charge is usually described as losing the bonus. It isn't, and the gap is arithmetic rather than policy. GOV.UK spells it out: "Assuming no growth, initial savings of £800 will earn a 25% government bonus of £200 and give you a pot of £1,000. If you wish to withdraw the entire pot, a 25% charge will apply to the full £1,000. You'll have to pay a government withdrawal charge of £250. This will leave you with £750."
£800 goes in and £750 comes out. The bonus adds a quarter of your contribution. The charge takes a quarter of a larger number, the pot. The two don't cancel, and what's left over is 6.25% of whatever you paid in. That ratio holds at every balance, which is why the shortfall column above runs in a straight line from £62.50 to £1,250.
HMRC's figures show how often this happens. In the 2025 to 2026 tax year 154,100 people made an unauthorised withdrawal, taking out £475,944,000 and paying £118,985,000 in charges. In the same year 99,750 people withdrew to buy a first home, at an average of £15,407. More savers paid the charge than bought a house, and that's been true in every tax year since 2022 to 2023.
The First Time Buyer ISA would remove the charge rather than reduce it. Withdrawing would be "the same as a Cash ISA, Stocks and Shares ISA or Innovative Finance ISA", with "no withdrawal charge". The bonus simply would not be paid unless the money buys a first home with a mortgage, and the consultation rules out "cash-only purchases or unregulated financing arrangements".
A £450,000 cap the average London first time buyer already clears
The Lifetime ISA's property price cap is £450,000 across the UK. The consultation leaves the new cap "To be confirmed at a future fiscal event". It promises that when the cap arrives, "the FTB ISA, LISA and Help to Buy ISA cap will be aligned so that no account holders will lose out". That makes £450,000 the only published figure. The question is how much of the country it reaches.
The chart plots the average price paid by a first time buyer in each region of Great Britain in July 2026, from the UK House Price Index. One region is already through the cap. A first time buyer in London paid £466,851 on average, which is £16,851 over the line, and that average was 4.0% lower than a year earlier. Everywhere else has room. The South East is next at £300,075, Scotland is at £160,341, and the North East is lowest at £145,895. Across Great Britain the average first time buyer paid £229,302, roughly half the cap. For the tax that lands on the same purchase, see stamp duty for first time buyers in 2026, which has its own cliff at a different price.
That spread is why the Treasury frames the cap as a targeting decision rather than a generosity one. The consultation puts the trade plainly: a lower subscription limit or price cap "could allow for a higher government bonus" but "would shift the benefits towards lower income savers outside London and the South East". One number can rise only if another falls, and the consultation asks which.
You could hold both products, but pay into only one
If you already hold a Lifetime ISA, the consultation's answer is that nothing's removed and nothing's doubled. Existing holders "will not be able to transfer their LISA to the new FTB product", because that would pay a second bonus on the same money. Both pots could still fund one purchase. The consultation: "LISA holders will be able to use any funds in their existing LISA and those in the new FTB ISA for the same purchase."
The limit is on subscriptions, not balances. "Individuals will be able to hold both the new FTB ISA and an existing LISA, but will only be able to save into one in the same tax year." Help to Buy ISA holders are treated more generously. They could transfer in up to the subscription limit. That account is closed to new applicants, pays a 25% bonus capped at £3,000 on £12,000 of savings, and takes subscriptions only until November 2029.
The cash ISA rules reach into the new product from April 2027
One confirmed change sits underneath all of this. The consultation restates that from 6 April 2027 "the annual cash ISA limit for individuals under 65 will be set at £12,000 within the overall annual ISA limit of £20,000", announced at Autumn Budget 2025. The Lifetime ISA sits outside those rules, which the consultation attributes to the withdrawal charge already locking the money away. The new product would not.
A cash version of the First Time Buyer ISA would count against the £12,000 cash limit as well as the £20,000 total. So the cash ISA limit cut to £12,000 would constrain a first home deposit held in cash. Transfers tighten too. The consultation proposes banning transfers from any stocks and shares account into any cash account. It concedes this "would mean individuals close to a house purchase would not be able to de-risk by transferring funds from a S&S FTB ISA into a Cash FTB ISA". That is a real cost of the simplification, and the consultation puts a question against it rather than a fix.
The strongest objection comes from HMRC's own savers
Here's the serious criticism of the whole trade, and it's in the government's own evidence. Ipsos interviewed 50 Lifetime ISA holders and eligible non-holders for HMRC between July and August 2023, testing a cut in the withdrawal charge against a lower bonus. The finding: "Overall, LISA holders included in this research felt that a generous bonus was more important than the flexibility of a reduced withdrawal charge."
That matters because the First Time Buyer ISA buys flexibility with a bonus rate nobody has named. If the rate lands below 25%, the Treasury's own research suggests existing savers would read the swap as a downgrade. The same study explains why the charge catches people out. Ipsos found "little understanding amongst LISA holders and non-holders included in this research that the current 25% charge would leave those who made an unauthorised withdrawal with less money than they had deposited into the LISA".
The answer to that objection sits in a second HMRC survey, of a different group. Ipsos polled 1,066 eligible non-holders between 6 and 12 February 2025 and asked what would make them open an account. The most common response, at 42%, was a rule change "so that original savings would not be lost with the withdrawal charge", rising to 48% among those who already knew what a Lifetime ISA was. People who hold one would rather keep the bonus. People who don't would rather lose the charge. The new product is designed for the second group, and the consultation is candid that the charge is "off putting to some savers, and to high street banks and building societies".
What this consultation cannot tell you
Most of what a saver would want to compare isn't published. The Lifetime ISA replacement has no stated bonus rate, no annual limit, no price cap and no launch date, so first time buyer ISA versus Lifetime ISA has no arithmetic answer yet. Everything in the table above is Lifetime ISA arithmetic under the rules in force for the 2026 to 2027 tax year, and those rules could themselves change at a fiscal event.
The evidence base has gaps of its own. HMRC's quantitative survey of Lifetime ISA holders was withdrawn on 26 March 2026 because "methodological issues were identified that mean the findings cannot reliably be generalised to the wider Lifetime Investment Savings Account (LISA) population". What survives is 50 qualitative interviews from 2023, and Ipsos states that its findings "are reflective only of the LISA holders and eligible non-holders who participated in the research". That's a small sample carrying a large policy argument.
The price data has limits too. The index flags "an error in the calculation of first-time buyer and former owner occupier prices prior to January 2026", so comparisons across that boundary are unsafe. A regional average also isn't a house. UK House Price Index estimates "for the most recent months are provisional and are likely to be updated as more data is incorporated into the index", and the cap applies to the price of the property actually bought. Whether buying beats renting at these prices is a separate question, worked through in the rent vs buy break-even model.
And a consultation is a consultation. Every design feature quoted here is a proposal the Treasury asked questions about, not law.
What would change the conclusion
The Budget on 28 October 2026 is where the three numbers missing from the Lifetime ISA replacement could appear. The consultation points at "a future fiscal event", and that's the next one. The Treasury hasn't said its response lands there.
If the bonus rate holds at 25% and the limit holds at £4,000, the new account is the old one with the penalty taken out. A saver who paid in £20,000 over five years and then needed the money early keeps the £1,250 the charge would have taken.
If the limit or the cap falls to pay for a higher bonus, the comparison flips by region. The consultation says that trade would shift benefits towards lower income savers outside London and the South East, where the average first time buyer already pays less than the £300,075 of the South East.
If the cap rises above £450,000, London stops being the exception. At £466,851 a London first time buyer sits £16,851 outside it, on July 2026 prices.
The detail worth watching isn't the headline bonus rate. It's the timing. A Lifetime ISA bonus is "paid upon deposit at the end of the month", so once it lands it's already in the account. The new product's bonus would instead be "paid on the net subscriptions made (subscriptions minus any withdrawals made before the bonus is claimed), rather than the final value of the account". Dipping into the account before buying would therefore shrink the bonus claimed at the end. Removing the penalty for taking money out, and netting the bonus against money taken out, are not the same thing, and only the first is in the headline.