What changed on 29 October

From 29 October 2026, a reduced Lifetime ISA withdrawal charge applies where a first-time buyer uses Lifetime ISA savings to buy a property costing more than £450,000. For those purchases, ISA managers must apply a charge of 20%, rather than the usual 25%, to the amount withdrawn. The change was announced at Budget 2026 and is supported by the Individual Savings Account (Amendment) (No. 3) Regulations 2026.

The £450,000 property price cap itself has not changed. Purchases at or below that cap that meet the other qualifying rules do not attract a withdrawal charge at all. The reduced rate applies only to eligible withdrawals made on or after 29 October 2026, and it does not apply retrospectively. A previous unlisted withdrawal cannot be reinstated into a Lifetime ISA.

What savers keep — and lose

In practice, the 20% charge removes the government bonus while leaving the saver's own contributions intact, before any interest or investment growth or loss. By contrast, the previous 25% charge could eat into the saver's own money as well as the bonus. As an illustration in the reporting shows, a £4,000 saving plus a £1,000 bonus totals £5,000; a 20% charge leaves £4,000, while a 25% charge would leave £3,750, assuming no interest or growth.

The 25% charge continues to apply to other unauthorised withdrawals, known as unlisted withdrawals. Savers must continue to use the existing house-purchase withdrawal process through their conveyancer, completing an investor declaration form, while the conveyancer confirms the property value. HMRC expects its systems redesign to collect the reduced charge to be completed in 2027, with managers retaining the charge in the meantime.

The wider first-buyer picture

The same Budget package confirmed a new First Time Buyer ISA, due to launch in April 2029 and replace the Lifetime ISA for new savers. That product is reported to keep the 25% bonus and the £450,000 price cap, but to drop the age limit and the withdrawal penalty. Existing Lifetime ISA holders can carry on under the current rules.

For now, the immediate effect is narrower: buyers whose first home costs more than the long-frozen £450,000 cap face a smaller penalty than before, but they still lose the bonus. The reporting also notes that £118,985,000 was recorded in Lifetime ISA withdrawal charges during 2025/26, underlining how many savers had previously been caught by the cap.

Sources: GOV.UK