Lifetime ISA is being scrapped - here’s what happens to your bonus

Lifetime ISA is being scrapped - here’s what happens to your bonus The Lifetime ISA is a useful tool for first-time buyers, though it has its pros and cons - it will soon be replaced, so here is what you need to know If you’ve got a Lifetime ISA , or you’ve been thinking about opening one, you’ve probably seen the headlines. The government is replacing it. So what happens to the money you’ve already put in, and the free bonus that came with it? Let’s start with the bit you most want to hear. Your existing Lifetime ISA isn’t going anywhere The government has said that if you already have a Lifetime ISA, it carries on as normal. You can keep paying in, and you keep getting your 25% bonus, which is up to £1,000 a year on the £4,000 maximum. Nothing changes for you overnight. The replacement is called the First Time Buyer ISA. It’s expected to arrive around April 2028, and it isn’t law yet. The government ran a consultation over the summer, so the details could still change. What the new ISA will look like The new account is aimed squarely at people buying their first home. The retirement option that comes with the Lifetime ISA is gone. There are some genuine improvements. There’s no upper age limit, so you don’t have to be under 40 to qualify. And the dreaded 25% withdrawal charge disappears, which is a big deal. At the moment, if you take your money out for anything other than a first home or retirement, you lose 25% of the whole amount. That’s not just the bonus. It’s some of your own cash too! Here’s the catch… Right now, the government tops up your savings as you go. Under the new plan, the bonus would only be paid when you actually buy your first home, and only once the account has been open for at least a year. That sounds like a small difference, but it matters. A bonus that lands in your account early gets to grow alongside your savings. One that arrives on the day you buy doesn’t. One analysis worked through an example. Someone paying in £4,000 a year for five years into a Lifetime ISA, assuming 4% growth, would end up with around £28,165. The same saver in the new account would have around £27,532. That’s not a huge gap, but it’s a gap, and the saver is the one who loses out. We also don’t yet know what the bonus rate will be. It might stay at 25%, or it might change. Can you move your Lifetime ISA into the new one? No. The government won’t allow transfers, because you’ve already received your bonus once and you can’t get it twice. But you will be able to use money from both accounts towards the same house purchase, so you won’t have to choose. So what should you do? - Already have a Lifetime ISA? Keep it. Nothing needs to change, and you shouldn’t withdraw anything in a panic. Remember that taking money out for the wrong reason still costs you 25%. - Thinking of opening one? You still can, if you’re between 18 and 39. It’s currently the only account that pays you a bonus upfront, so if you’re buying in the next few years, it’s worth a proper look. Alternatively, it might be worth checking out the stocks and shares ISA. - Not sure when you’ll buy? Remember that the property price cap is £450,000, and it hasn’t moved since 2017. In plenty of places, that won’t stretch to a first home. This isn’t one of those “act now or lose out” stories. It’s more of a “know where you stand” story. If you’ve got a Lifetime ISA, you’re fine. If you’re about to start saving for a first home, the next couple of years will be a good time to keep an eye on how the new account shapes up. This article is for general information purposes only and does not constitute financial advice. Details of the First Time Buyer ISA are still subject to consultation and legislation, and may change.