Lifetime ISA charge cut to 20% for first homes priced above £450,000

From Thursday 29 October, a first-time buyer who takes money out of a Lifetime ISA to buy a home costing more than £450,000 pays a 20% charge instead of 25%. The change was announced in Wednesday's Budget.

The Treasury says the 20% rate is designed to recover the government bonus while letting savers keep the money they paid in themselves. Until now, buyers over the cap paid the same 25% charge as any other unauthorised withdrawal, and the Treasury said it wanted to remove the risk of savers being penalised for buying above the cap.

Who is affected

The lower charge applies only to withdrawals for a residential purchase that meets every other first-home rule except the price. Homes at or below £450,000 still carry no charge. Taking money out for any other reason that is not permitted is still charged at 25%.

HMRC says buyers above the cap will not need to do anything differently. The rules will be changed by amending the Individual Savings Account Regulations 1998 to create a separate type of withdrawal for these purchases. The Budget puts the cost to the Treasury at £15 million in 2026-27, rising to £25 million a year by 2029-30.

Its impact note shows how the accounts are used. About 1.6 million people hold a Lifetime ISA. In 2024-25, 87,250 people withdrew money to buy a home, around 30,500 more than the year before, and the average withdrawal was £15,782.

A replacement from 2029

The Budget also confirmed that a First Time Buyer ISA will open in April 2029 and replace the Lifetime ISA for new savers. Its main terms, from the Treasury's response to its summer consultation:

• Savers can pay in up to £4,000 a year, with a 25% government bonus.
• The bonus is worked out on the final balance, including interest or investment growth, and paid when the money is used for a first home worth up to £450,000.
• The total bonus is capped at £20,000.
• There will be no upper age limit, and each person can hold only one account at a time.

Existing Lifetime ISAs opened before the new product arrives can carry on under the current rules. Money cannot be transferred from a Lifetime ISA into the new account, because that would mean two bonuses, but both can be used towards the same purchase. Help to Buy ISA holders will be able to move their full balance into a First Time Buyer ISA between 6 April 2029 and 1 December 2030, outside the annual limit.

The £450,000 price cap stays in place for both products. The Treasury said it had considered calls to raise, index or regionalise it, but would keep it to target support at typical first-time buyers.