New first-time buyer ISA – what we know so far

The government has provided further details of its proposed new first-time buyer ISA, which is expected to replace the Lifetime ISA.

Although no introduction date has yet been announced, there are some significant differences between the proposed new account and the existing Lifetime ISA.

Who will be able to use it?

The proposed first-time buyer ISA will be specifically designed to help people purchase their first home.

This differs from the Lifetime ISA, which can currently be used either to purchase a first home or to save for retirement.

There will also be an important difference in the age restrictions.

A Lifetime ISA can generally only be opened between the ages of 18 and 40, with contributions stopping at age 50.

The proposed first-time buyer ISA will instead be available to first-time buyers aged 18 or over, with no upper age limit.

How will the government bonus work?

Under the Lifetime ISA, the government bonus is added to the account during the saving period. This means the bonus itself can potentially benefit from interest or investment growth.

Under the proposed first-time buyer ISA, the government bonus would instead be paid when a qualifying property is purchased.

Another important difference concerns withdrawals.

Lifetime ISAs normally carry a 25% withdrawal charge where funds are taken out for a non-qualifying purpose.

The proposed first-time buyer ISA will not have an equivalent withdrawal penalty.

What happens to existing Lifetime ISAs?

Existing Lifetime ISAs are not expected to disappear immediately.

Someone who already has a Lifetime ISA – or who opens one before the new account is introduced – should be able to continue contributing to it.

It is not expected to be possible to transfer a Lifetime ISA directly into a first-time buyer ISA.

However, savers are expected to be able to choose each tax year whether they contribute to a Lifetime ISA or the new first-time buyer ISA, and funds held in both accounts could potentially be combined when purchasing a property.

Should you change your plans now?

There is no need to take action purely because of the announcement.

Full details of the new product, including when it will become available, are still to be confirmed.

Anyone saving towards a first home should therefore consider the rules applying to the existing Lifetime ISA alongside their own timescale and circumstances rather than relying on a future change.

‍Contact us

Please contact us to find out how the above applies in your circumstances and how we can help you.

Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.