Budget 2026: Lifetime ISA withdrawal fine axed for homes above £450,000 in major MSE win – plus First-Time Buyer ISA launch confirmed

In addition, the Government has confirmed that it will go ahead with the launch of the already trailed First-Time Buyer ISA, which will now come into force from April 2029.

Martin Lewis: 'This will be a great relief to many young people'

Commenting on the announcement, Martin said:

Lifetime ISA withdrawal penalty to be axed

LISAs are designed to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement. Savers get a 25% Government boost when they use the funds to buy a qualifying first home. They're a powerful product – still beneficial to many – which can give a huge boost to first-time buyers' savings.

But the scheme's £450,000 house price limit has remained frozen since it launched in 2017, despite house prices rising significantly since then. This has left some first-time buyers unable to find a suitable property under the limit, and savers buying a home that no longer qualifies are then effectively charged a 6.25% penalty on their own money when withdrawing – something we've been campaigning to fix since January 2023.

The Government has now confirmed that the withdrawal penalty on the LISA will be axed from tomorrow (29 October 2026) for those buying homes above the scheme's limit. In practice, this will see the withdrawal charge reduced from 25% to 20% in this scenario.

It means savers using their LISA to buy homes above the scheme's £450,000 limit will lose the Government's bonus, plus any growth or interest earned from just the bonus. But they won't lose any of their own savings or any growth or interest earned on their own money. As Martin explains:

In practice, LISA holders shouldn't see any change to the buying process. They should continue to follow the existing house-purchase withdrawal process through their conveyancer. The LISA provider will then deduct the reduced 20% withdrawal charge and release the LISA funds to the conveyancer.

Note: This applies to eligible withdrawals made on or after 29 October 2026. It does not apply retrospectively.

If you withdraw money for any reason other than buying a home (or at retirement), the charge for this will remain at 25%.

First-Time Buyer ISA to go ahead from April 2029

Plans to scrap the Lifetime ISA were first revealed in the former Chancellor Rachel Reeves' November 2025 Budget. This is when Ms Reeves also revealed plans to consult on a new ISA for first-time buyers.

Further details on the First-Time Buyer ISA were then put forward in June 2026, and now the Government has confirmed that:

• The scheme will be available from April 2029.

• You'll be able to save up to £4,000 a year – the same as with LISAs.

• You'll earn a 25% Government bonus up to a maximum of £20,000. This is over the life of the product. With LISAs, you earn a 25% bonus of up to £1,000 a year, up to a maximum of £33,000.

• The property price cap will be £450,000. The same as with LISAs.

• The bonus will be calculated based on the final balance in your ISA at the point you use it to buy a qualifying home. This WILL include any interest or investment growth accrued in the ISA.
  
  This is different to what was originally proposed earlier this year, when the previous Government planned for the bonus to only apply to net subscriptions (subscriptions minus any withdrawals made before the bonus is claimed).
  
  For example, under the previous plans, someone who had saved £10,000, which had grown to £15,000, who then withdrew £7,000, would only be able to get the bonus on £3,000. Under the new rules, the bonus would be payable on £8,000 instead.
  
  This is also different to LISAs, where the bonus is paid monthly and interest can be earned on top of it. However, the new system means there's now no need for any withdrawal charge.

• There will be no upper age limit to open it. With LISAs you must make your first payment before you turn 40.

• You can't transfer between FTB ISAs and LISAs, but both products can be used towards the same purchase.

• Existing LISA holders will be able to continue contributing to and using their accounts.