The Government has revealed plans for a new First Time Buyer Individual Savings Account (ISA) to replace the existing Lifetime ISA. Expected to launch in April 2028, the First Time Buyer ISA will offer a bonus to savers when purchasing their first home, similar to the benefits of the current Lifetime ISA.
Unlike the Lifetime ISA, which allows savings for both first home purchases and retirement, the new First Time Buyer ISA will solely focus on aiding individuals in buying their first home and will not serve as a retirement savings option.
Savers can contribute up to £4,000 per tax year into a Lifetime ISA, receiving a 25% bonus from the Government, equating to a potential £1,000 bonus annually. In contrast, the bonus for the upcoming First Time Buyer ISA has not been disclosed yet.
With the new ISA, the bonus will be provided at the point of property exchange, eliminating penalties for early fund withdrawals, a feature not available in the current Lifetime ISA structure. However, misuse of the Lifetime ISA funds for purposes other than buying a first home or retirement incurs a 25% charge, negating the bonus and a portion of the original savings.
While the property price limit for the Lifetime ISA remains at £450,000, discussions are ongoing about potential updates to this threshold. Additionally, individuals with existing Lifetime ISAs can maintain their accounts and continue utilizing them. Although transfers from Lifetime ISA to the new First Time Buyer ISA are not allowed, both accounts can be used concurrently for a single property purchase within the same tax year.
For holders of Help to Buy ISAs, transferring to the First Time Buyer ISA will be feasible. A consultation to gather feedback on the First Time Buyer ISA is open until mid-August, aiming to shape the final details of the new savings program.
Rachael Griffin, a tax and financial planning expert at Quilter, highlighted the importance of providing flexibility to savers, allowing access to funds when needed while still encouraging saving for a first home deposit.