# Lifetime ISA: how it works, the 25% charge and the planned replacement > The Lifetime ISA adds a 25% government bonus to savings for a first home or later life, but a 25% charge applies to most other withdrawals. This… - URL: https://centiview.com/uk-money/lifetime-isa-how-it-works-and-what-replaces-it - Published: 2026-10-18T08:36:00.000Z - Figures checked: 2026-10-18 - Edited by David A - Topic: Savings (UK) - Publisher: Centiview (Persie Ltd, London) - General information only, not financial advice The Lifetime ISA adds a 25% government bonus to savings for a first home or later life, but a 25% charge applies to most other withdrawals. This guide explains the rules for 2026/27 and the planned replacement. ## What a Lifetime ISA is A Lifetime ISA, often shortened to LISA, is a type of Individual Savings Account, the tax-free savings wrapper that lets interest and investment growth build up without income tax or capital gains tax. What makes it different is the government bonus: the state adds 25% to what you pay in, up to £1,000 a year. It has two purposes, helping someone buy a first home or helping them save for later life,. It can hold cash, stocks and shares, or both. ## The key figures and limits You must be 18 or over and under 40 to open one, and be UK resident. Your first payment must be made before you turn 40, and you can keep paying in until you turn 50. The most you can pay in is £4,000 in a tax year, which counts towards your overall ISA allowance of £20,000 for 2026/27, so a Lifetime ISA uses up part of that allowance rather than adding to it. After 50 you can no longer pay in or receive the bonus, but the account stays open and carries on earning interest or growth. > **Key numbers** 2026/27: pay in up to £4,000 a year. Bonus 25%, up to £1,000 a year. Open at 18 to 39. Pay in until 50. Property price limit £450,000. Charge on most other withdrawals: 25%. Figures checked 18 October 2026 on GOV.UK. ## When you can take money out without a charge There are three situations where a withdrawal carries no charge: buying your first home, being aged 60 or over, and being terminally ill with less than 12 months to live. For a first home, GOV.UK sets out several conditions. The property must cost £450,000 or less, and this limit applies across the whole UK, including Scotland, Wales and Northern Ireland. You must buy at least 12 months after your first payment into the account, and you must be buying with a mortgage. A conveyancer or solicitor must act for you, and the provider pays them directly rather than paying you. A private mortgage from certain close relatives does not count. If you buy jointly, both buyers must be first-time buyers who meet the conditions, and both need their own Lifetime ISA if you want to use both people's savings and bonuses. If you also hold a Help to Buy ISA, the bonus can be used from only one of the two accounts. On death, the account closes and the money can be withdrawn without the charge. ## What the 25% charge does Any other withdrawal is called an unauthorised withdrawal, and it costs 25% of the amount taken out. The key detail is that the 25% is applied to the whole amount, bonus included. Because the bonus is 25% of what you paid in, the bonus is only one fifth of the total in the account, so a charge of one quarter of the total is larger than the bonus itself. The result is that you receive less than you paid in. GOV.UK's example: to receive £120 you must take out £160, as £40 is deducted. ## A worked example For example, suppose someone pays in the full £4,000 during 2026/27 and receives a £1,000 bonus, giving £5,000, and we ignore any interest or growth to keep the arithmetic clear. If they took out the entire £5,000 for a reason outside the three listed above, the charge would be 25% of £5,000, which is £1,250. They would receive £3,750, which is £250 less than the £4,000 they paid in themselves. If they instead used the account for a qualifying £300,000 first home after at least 12 months, no charge would apply and the £1,000 bonus would stay in the deposit. This is illustrative only. ## Who this applies to, and who it does not This guide is for people who hold a Lifetime ISA, or who are 18 to 39 and UK resident and are reading about one, anywhere in the UK. It does not cover Junior ISAs for children or the Help to Buy ISA, which runs on separate rules. Anyone aged 40 or over without an existing account cannot open one, and the first-home route is only for first-time buyers. ## The planned replacement In June 2026, HM Treasury consulted on a new product called the First Time Buyer ISA, which it says would be offered in place of the Lifetime ISA once it is available. The consultation ran from 22 June to 18 August 2026 and is now closed. The Treasury is analysing feedback and will publish the outcome on that page. No start date has been given. As currently proposed, the new account would be only for buying a first home, would be open to anyone aged 18 or over with no upper age limit, and would have no withdrawal charge. Its bonus would be paid only when money is withdrawn to buy a first home with a mortgage, and only after the account has been open for a year. The subscription limit, property price cap and bonus rate had not been set in the consultation document. - Until the new product is available, people can still open a Lifetime ISA and keep saving into an existing one under the current rules. - The consultation document says people with savings in a Lifetime ISA will be able to use those funds towards a first home, and can hold both the new account and an existing Lifetime ISA but cannot transfer into it. > **Why the change is proposed** The Treasury says unauthorised withdrawal charges reached 8% of all accounts opened in 2024-25, and that more savers have lost part of their original savings than have used the account to buy a home. ## Common mistakes and free help HMRC research cited in the consultation found that people who made unauthorised withdrawals often pointed to financial difficulty, such as unemployment or paying off debts, and that awareness of the withdrawal conditions was low. One thing to watch is that the charge is bigger than the bonus. Another is arranging a purchase before the account has been open 12 months, or agreeing a price just above £450,000. It can be worth checking the open date and the price limit before exchanging contracts. Free, impartial help is available from MoneyHelper and Citizens Advice. Financial hardship is a common reason for early withdrawals, and StepChange offers free debt advice if money is under pressure. ## Check before you act Rules, limits and the replacement plans can change, so confirm the current position on the official pages linked below, and check your provider's own terms, before relying on anything in this guide. ### Sources - [GOV.UK, Lifetime ISA overview](https://www.gov.uk/lifetime-isa) - [GOV.UK, Who can open a Lifetime ISA](https://www.gov.uk/lifetime-isa/who-can-open-a-lifetime-isa) - [GOV.UK, Withdrawing money from your Lifetime ISA](https://www.gov.uk/lifetime-isa/withdrawing-money-from-your-lifetime-isa) - [HM Treasury, First Time Buyer ISA consultation](https://www.gov.uk/government/consultations/first-time-buyer-isa-consultation) - [HM Treasury, First Time Buyer ISA consultation document (PDF)](https://assets.publishing.service.gov.uk/media/6a4243e1db380b085e94aae4/FTB_ISA_Condoc.pdf)