Lifetime ISA changes: your questions answered - Police Friendly & Metfriendly

The Government has released a consultation to replace the Lifetime ISA (LISA) with a new First Time Buyers ISA.

Some of the headlines may sound confusing, particularly if you already have a LISA, but the key message is simple:

The Lifetime ISA is still available, and existing LISA holders can keep saving under the current rules.

If you already have a LISA, there is nothing to worry about. You can continue to hold it and make contributions under the existing rules.

If you’re aged 18 to 39 and do not yet have one, there is still time to open a LISA while it remains available – and there are good reasons for doing so.

Even if you’ve already bought your first home, still think about opening one as a way to boost your retirement savings.

What is a Lifetime ISA?

A Lifetime ISA, often called a LISA, is a tax-efficient account that helps people save for either:

• their first home
• later life, with a tax-free payout from age 60

You must be aged 18 to 39 to open a LISA.

You can pay in up to £4,000 each tax year, and the Government adds a 25% tax-free bonus on eligible payments.

That means if you pay in £4,000, the Government adds £1,000 – tax-free. A fully funded LISA could receive up to £32,000 in tax-free Government bonuses over time, based on the current rules.

That is before any growth on your savings, which is also tax-free.

You can continue paying in and receiving the Government bonus until your 50th birthday.

What’s changing?

The Government has announced a consultation on a new First-Time Buyer ISA.

This new ISA could replace the Lifetime ISA once it becomes available.

Unlike the current LISA, the proposed First-Time Buyer ISA would focus only on helping people buy their first home.

This means it is not expected to include the later-life saving option that currently exists within the LISA.

Will I be able to open my Lifetime ISA after the First-Time Buyer ISA is launched.

No, but if you already hold a LISA, you can continue paying into it indefinitely, even after the First-Time Buyer ISA is launched.

Will the £450,000 property price limit change?

Possibly.

Under the current LISA rules, the property you buy must cost £450,000 or less if you want to use your LISA without paying a withdrawal charge.

This has been a concern for some first-time buyers, especially in areas where house prices are higher.

The Government has recognised this issue and is looking at the right property price cap for the new First-Time Buyer ISA.

No final decision has been made.

Will there still be a withdrawal penalty?

No, the proposed First-Time Buyer ISA is expected to work differently from the LISA.

With a Lifetime ISA (LISA), a 25% withdrawal charge applies if you take money out for any reason other than purchasing your first home or after reaching age 60. For example, if you contribute £800, the government will add a £200 bonus, giving you a total balance of £1,000. If you then make an unauthorised withdrawal, a 25% charge (£250) will be deducted from the full balance, leaving you with £750. As a result, you could receive back less than the amount you originally contributed.

With the proposed First-Time Buyer ISA, the Government bonus will be paid when you buy a qualifying first home.

Because the bonus would not be added upfront, there would be no need to take it back if you withdraw your own money for another reason.

The detailed rules are still being developed.

What are the main differences at a glance?

	Lifetime ISA	Proposed First-Time Buyer ISA
Status	Available now	Proposed for the future
Main use	First home or later life	First home only
Age to open	18 to 39	Expected to be 18 and over
Annual allowance	£4,000	To be confirmed
Government bonus	25% added to eligible payments	Expected to be paid when buying a first home
Current maximum annual bonus	£1,000	To be confirmed
Property price cap	£450,000	To be confirmed
Withdrawal charge	25% if not used for a first home or from age 60	Not expected, because bonus is paid later
Later-life saving option	Yes, from age 60	Not expected

Can I still open a Lifetime ISA?

Yes.

If you are aged 18 to 39, you can still open a Lifetime ISA under the current rules.

The Government has said that it will remain possible to open a LISA until the proposed First-Time Buyer ISA becomes available, and LISA holders will be able to save into their LISA in line with the existing rules indefinitely, 

That means there is still time to act if you are eligible.

What happens if I already have a Lifetime ISA?

Under the current proposals, you will be able to keep saving into it under the existing rules.

That means you will continue to receive the 25% Government bonus on eligible payments.

Should I keep paying into my LISA?

If you can afford to, yes.

The Lifetime ISA remains an attractive product because of the 25% tax-free Government bonus.

Keeping up your payments could help you:

• build a bigger first-home deposit
• receive the maximum Government bonus
• benefit from long-term growth potential
• save towards a tax-free payout from age 60

You do not need to do it all at once. Regular payments can help you build your LISA over time.

Can other people pay into my LISA?

Yes.

Parents, grandparents or other family members can pay into your LISA.

The LISA must be opened by the account holder, and the total paid in must stay within the annual LISA allowance.

But once the account is open, family contributions benefit from the 25% Government bonus in just the same way as the account holder’s contributions do.

What if I have already used my LISA to buy my first home?

You can keep paying into your LISA and use it as a longer-term savings pot for later life.

You will continue to receive the 25% Government bonus on eligible payments until your 50th birthday.

You can then access the money tax-free from age 60.

How has the LISA helped Metfriendly and Police Friendly members?

Nearly 1,500 of our members have used their Lifetime ISA to buy their first home.

On average, they received an extra home deposit boost of around £3,000 from the Government.

For many of our members, that bonus coupled with investment growth in the form of annual and final bonuses has made a real difference.

What is the proposed First-Time Buyer ISA?

The proposed First-Time Buyer ISA will be a new ISA designed to help people buy their first home.

It is expected to be available to adults aged 18 and over without the upper age limit that applies to LISAs.

Unlike the LISA, it is expected to focus only on saving for a first-home.

The Government bonus is also expected to work differently. Instead of being added each year, it will be paid when a qualifying property purchase takes place.

The final rules have not yet been confirmed.

Will I be able to transfer my LISA into the new First-Time Buyer ISA?

This is not expected to be allowed.

The reason is that your LISA already includes the Government bonus.

Under the current proposals, existing LISA holders would continue to use their LISA under the existing rules.

What should I do now?

If you already have a LISA with us, consider keeping up your payments if you can afford to.

If you have already used your LISA to buy your first home, you may still be able to keep paying into it for withdrawal at age 60.

If you are aged 18 to 39 and do not yet have a LISA, now may be a good time to look at opening one while it is still available.

And if you are a parent or grandparent, you may want to talk to your child or grandchild about whether a LISA could help them save for their first home or later life.