A first look at the LISA replacement

Saving for a deposit to buy your first home? You might be aware of the LISA – the Lifetime Individual Savings Account.

It’s estimated 1.3 to 1.5 million people have an active LISA, with almost 250,000 using the funds saved to buy a property. Are those figures any good? The Government doesn’t think so.

How does a LISA work?                              

On paper, LISAs are an appealing way to save tax free. For every £1 an account holder saves, the Government adds 25p. The saver can deposit up to £4,000 every year, with the Government contributing an annual maximum of £1,000. The cash saved can be used to buy a first home or used to fund retirement. There are restrictions, however.

 

• You have to be between 18 and 39 to open an LISA

• The first deposit into a LISA must come before you’re 40 years old

• You can only save in a LISA until you’re 50 years old

• LISA holders can only purchase a home worth up to £450,000

• You need to be 60 years old to withdraw the cash in a LISA for retirement purposes

• Unauthorised withdrawals – cash taken out of a LISA for a reason other than to buy a property or retire – are hit with 25% financial penalty

Restrictions prompted a rethink

The above restrictions prompted the Government to question whether LISAs were fit for purpose. Its verdict was delivered in the Autumn Budget 2025. LISAs were to be phased out.

That doesn’t mean there won’t be an ISA specifically for first-time buyers. On the contrary. The Government already has a replacement – the First Time Buyer ISA (FTB ISA).

A new way for first-timers to save

The first look at FTB ISAs came in June 2026, when the Government opened a consultation on what the FTB ISA will look like and the restrictions it might have. The document is important for all first-time buyers – those that already have a LISA and those that are considering saving for a deposit.

If you’re wondering if the rest of this article is for you, the Government says it will be possible to keep an existing LISA and also open a new FTB ISA. Interested in learning more? Read on.

What LISAs and FTB ISAs will have in common

LISAs haven’t been a total failure and some of the structure will be replicated in the FTB ISA. As follows:

• You’ll need to be 18 and a true first-timer buyer to open a FTB ISA – that means you can’t have owned a property before

• You’ll need to use a legal mortgage to buy your first home

• You can choose a cash or a stocks and shares FTB ISA

• The Government will make a cash contribution to ‘top up’ the amount you save

• Account holders will be able to save up to a set amount of money every year

• The FTB ISA is a tax-free saving plan – you won’t pay tax on the money you deposit, the Government contribution, interest earned or share gains

• The value of a property bought will be capped to an upper limit

• The ISA will need to be open for a year before the funds can be used

FTB ISA: the differences that make it better

The Government wants to end financial penalties on unauthorised withdrawals. To do this it will change the way it makes its cash contribution.

With LISAs, the Government’s contribution is paid monthly. Additionally, the 25% penalty for unauthorised withdrawals applies to the top-up cash as well as the saver’s deposited funds. With FTB ISAs, the Government contribution will only be paid at the point when the account holder exchanges on a property.

This allows the 25% financial penalty to be scrapped – it won’t apply to FTB ISAs at all. This gives savers better access to their cash if something unexpected happens.

What we don’t know yet is how much can be saved annually into a FTB ISA, how much the Government will contribute and whether the purchase price cap will change. 

Saving for your retirement won’t be possible with a FTB ISA. A LISA might be the better option if you’re self-employed or can’t access a workplace pension, if you can open one before the accounts close to new applicants in 2028. 

What next for LISA holders?

Savers who already have a LISA will carry on as is – they can still save up to £4,000 per year and the Government will still contribute. The only change will come when the Government sets the FTB ISA purchase price cap. If this differs from the £450,000 currently attached to the LISA and the Help to Buy ISA, all three will fall in line with the FTB ISA benchmark.

No need to choose: have both

The Government consultation paper indicates current LISA holders will also be able to open a FTB ISA, using the combined funds in a single property transaction. The saver, however, will only be able to deposit cash into one ISA in the same tax year.

What happens between now and 2028?

First-timer buyers can continue to open LISAs until they officially close in 2028, probably in April.

We should get further FTB ISA details in 2027’s Spring Statement or Autumn Budget. There may be enough time between a finalised FTB ISA and LISAs being phased out for first-time buyers to open the ISA that suits their circumstances best. If in doubt, speak to a financial adviser.

Our door is open for property advice, from working out how much deposit you might need to booking appointments to view starter homes. Get in touch today.