From 29th October 2026, some first-time buyers using a Lifetime ISA (LISA) to buy a home costing more than £450,000 will face a lower withdrawal charge. The charge falls from 25% to 20% for a qualifying first-home purchase above the existing price cap. It does not make the withdrawal charge-free, and the 25% charge remains for other unauthorised withdrawals.
What is changing to the Lifetime ISA withdrawal charge?
A Lifetime ISA helps eligible people save towards their first home or later life. The government normally adds a 25% bonus to contributions, subject to the account rules. However, using the money for a first home has conditions, including a £450,000 property price cap.
Before this change, a Lifetime ISA holder buying a home above that cap could not make a qualifying charge-free first-home withdrawal. From 29th October 2026, the government says Lifetime ISA funds can be used for a purchase above £450,000 that otherwise meets the qualifying rules, with a reduced 20% withdrawal charge.
The lower charge is still a charge. It reduces the amount deducted, but does not remove all the restrictions on using Lifetime ISA savings. Check the current rules with your provider and conveyancer before requesting money.
How the withdrawal charges compare
Qualifying first-home purchase above £450,000
20%
Reduced charge from 29th October 2026, if the purchase meets the applicable conditions.
Other unauthorised withdrawals
25%
The existing charge remains for withdrawals that do not meet the permitted conditions.
The rate depends on why you are withdrawing and whether the purchase qualifies. Do not assume the lower rate applies to all withdrawals.
How much difference does the 20% charge make?
The example below shows how the two rates compare when £10,000 is withdrawn from a Lifetime ISA. The charge is calculated on the amount withdrawn, which can include savings, the government bonus and any growth.
The £10,000 is the total amount withdrawn, which may include the saver’s contributions, government bonus and any growth. The example is illustrative; the lower rate only applies if the purchase meets the qualifying rules.
Who can use the reduced charge?
The change is aimed at Lifetime ISA holders who are first-time buyers and are purchasing a home above £450,000. The purchase must otherwise meet the applicable Lifetime ISA first-home rules. The Budget announcement does not mean that property price alone is enough to qualify.
How the £450,000 price cap fits in
£450,000 or less
A purchase may qualify for a charge-free withdrawal if all the existing conditions are met.
More than £450,000
From 29th October 2026, an otherwise qualifying purchase can use the reduced 20% charge.
These are not automatic outcomes. Other eligibility, timing and purchase conditions still matter.
HMRC’s current guidance says that a qualifying first-home withdrawal normally requires the investor to have made their first Lifetime ISA payment at least 12 months earlier, to use a conveyancer or solicitor, and to buy with a mortgage. The funds are paid by the Lifetime ISA provider directly to the conveyancer. The current guidance also sets rules about the property being used as the buyer’s main residence and restrictions on mortgages involving connected people.
Because the revised rules have only just been announced, check for updated HMRC guidance and ask your provider and conveyancer to confirm how the change will be handled before you request a withdrawal.
What happens to other Lifetime ISA withdrawals?
The 25% withdrawal charge remains for other unauthorised withdrawals. This can apply when money is taken out for a reason that is not allowed under the Lifetime ISA rules. The charge is calculated on the amount withdrawn, including any government bonus included in the account balance, so it can mean you receive less than you originally paid in.
Existing permitted withdrawals remain a separate matter. Under current guidance, you can normally withdraw without a charge to buy a qualifying first home within the price cap, from age 60, or in specified terminal-illness circumstances. Different conditions apply to each situation. Check HMRC’s current guidance rather than assuming a withdrawal is permitted.
What is the new First Time Buyer ISA?
The government plans to introduce a new First Time Buyer ISA from April 2029, replacing the Lifetime ISA for new savers. It is intended to provide government support towards buying a first home without a withdrawal charge for a qualifying purchase.
The government says the bonus will be paid on the value of the account balance when the money is withdrawn for a qualifying first-home purchase, up to the £450,000 property limit. The government intends to introduce primary and secondary legislation before the product launches in April 2029, so detailed operational rules may be clarified before then.
This future account does not need to be opened to benefit from the Lifetime ISA charge reduction starting in October 2026. The two announcements address different circumstances: one changes the charge for certain existing Lifetime ISA withdrawals, while the other sets out a planned savings product for future first-time buyers.
What should existing Lifetime ISA holders do?
The Budget says existing Lifetime ISA holders will be able to continue contributing to and using their accounts under the current rules when the new product is introduced for new savers. The announcement does not tell existing holders to close their account or transfer their money.
If you are considering buying a home above £450,000, do not request a withdrawal based only on the headline 20% rate. First check that the purchase meets the qualifying conditions, confirm the revised process with your Lifetime ISA provider and conveyancer, and check the latest official guidance. The charge reduction does not guarantee that the account can be used for every property purchase.
If you are planning ahead for a future first home, wait for the First Time Buyer ISA’s detailed rules before making a decision about account arrangements. The announcement alone is not enough to compare every feature of the two products for an individual saver.
Frequently asked questions
Does the 25% Lifetime ISA charge still apply to other withdrawals?
Yes. The 25% charge remains for withdrawals that do not meet the permitted conditions. The exception announced for 29th October 2026 is an otherwise qualifying first-home purchase above £450,000, where the charge falls to 20%.
Can I use a Lifetime ISA to buy a home costing more than £450,000?
From 29th October 2026, the government says a qualifying first-time buyer can use their Lifetime ISA funds for a purchase above the cap with a 20% withdrawal charge, provided the other qualifying rules are met. Check the updated guidance and process before making a withdrawal.
Do I need to open a First Time Buyer ISA now?
No. The new account is planned for April 2029 and is not available yet. Existing Lifetime ISA holders can continue to contribute to and use their accounts under the current rules, according to the Budget announcement.
Can I keep my Lifetime ISA after the new account launches?
Yes. The government says existing Lifetime ISA holders can continue contributing to and using their accounts under the current rules. The new First Time Buyer ISA is intended for new savers from April 2029. Legislation and detailed implementation arrangements are still to come.
Where can I check the rules before withdrawing money?
Use the official HMRC Lifetime ISA guidance linked below, and confirm the details with your Lifetime ISA provider and conveyancer. The provider and conveyancer can check the requirements relevant to your particular purchase.