A new First Time Buyer ISA that would replace the existing Lifetime ISA has been announced by the Government.
The First Time Buyer ISA would give savers a bonus when purchasing their first home, similar to how the Lifetime ISA works.
The Lifetime ISA can be used for buying your first home, or for retirement, with savings accessible from when someone turns 60.
But the First Time Buyer ISA will be strictly for buying your first home – it will not be available for retirement saving.
You can save up to £4,000 every tax year into a Lifetime ISA, and you get a 25% bonus from the Government. This means you can get up to £1,000 free every tax year.
With the new First Time Buyer ISA, the bonus will be paid at exchange, meaning savers will not incur a penalty for withdrawing their funds early.
Savers are charged 25% if they try to use their Lifetime ISA savings for any reason other than buying your first home or retirement. This not only wipes out the bonus, but also part of the original savings.
It has not yet been announced what the bonus for the new First Time Buyer ISA will be. It has also not been revealed if the property price threshold will be updated.
With the Lifetime ISA, the property you’re buying can’t be worth more than £450,000.
This limit has been in place since the Lifetime ISA was launched in 2017 and campaigners have been calling for it to be increased, to keep up with rising house prices.
For those that already have a Lifetime ISA, you will be able to keep your account open and keep using it.
However, you won’t be able to transfer your Lifetime ISA to the new First Time Buyer ISA – but if you have a Help to Buy ISA, you will be able to transfer it.
There is a now a consultation to gather views on the First Time Buyer ISA, which will close in mid-August.
Rachael Griffin, tax and financial planning expert at Quilter, said: “Thousands of savers have been charged for accessing their LISA for an unauthorised withdrawal, often because their financial circumstances changed unexpectedly and they needed to dip into their savings.
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“Allowing people to access their money when needed, while still being incentivised to save towards a deposit for a first home, would be a much better design.”