UK Lifetime ISA Overhaul, January 31: Bonus Only at Home Purchase From 2028
The Lifetime ISA UK is changing from 2028. HMRC has said the account will become a first-home-only product, with the 25% bonus paid at completion and the withdrawal penalty removed. This HMRC ISA update shifts how people save for deposits and retirement. We explain what is confirmed, what is still unclear, and how savers and platforms can prepare. We also compare alternatives so first-time buyers and long-term investors can plan with confidence.
What changes from 2028
HMRC confirmed a first-home-only account where the 25% bonus is paid on completion of a property purchase, and the current withdrawal penalty is removed. Retirement use would end. The update was set out on 31 January and marks a major shift for deposit planning. For context on the confirmation, see reporting from FTAdviser.
Key items are still pending: annual contribution rules, age eligibility, property price cap, transfer mechanics, and how existing accounts transition. We expect further guidance in statements from HM Treasury during 2024–2027. Until then, households should avoid quick moves and keep records of contributions and bonus history, as these may guide any grandfathering or transfer options once final rules arrive.
Who gains and who loses
Paying the first-time buyer bonus at completion cuts the risk of losing money to the 25% withdrawal penalty if plans change. That flexibility helps those unsure about when they will buy. The trade-off is less compounding, since bonuses may no longer build inside the account over time. Deposit timelines, mortgage offers, and conveyancing cashflows will matter more under the new setup.
Under current rules, people can open at 18–39, contribute up to £4,000 a year, and get a £1,000 bonus, using funds for a first home or after age 60. Ending retirement access narrows options for self-employed and young investors. Many will shift to pensions for tax relief or to Stocks and Shares ISAs, reducing the role of the Lifetime ISA UK in long-term investing.
What to do before the switch
If you already use a Lifetime ISA UK, consider continuing contributions while rules remain. Keep your property goal realistic relative to the current £450,000 cap. Review risk level if your purchase is within 3 years. Hold necessary ID and conveyancing documents early. Track bonuses and statements, as evidence of eligibility could help during any transition to the new first-home product.
Map client segments by goal and timeline. Update product disclosures and illustrations to reflect bonus-at-completion and no-penalty assumptions. Model deposit shortfalls if bonus compounding ends. Prepare operational flows for completions and solicitor interactions. For consumer sentiment and concern over retirement use, see coverage in The Times.
Alternatives for long-term goals
Workplace pensions remain the first stop due to employer matching and tax relief. Self-employed savers can use SIPPs with basic-rate relief added and higher-rate claims via self assessment. Stocks and Shares ISAs offer flexibility and tax-free growth, though with no top-up. Decide based on time horizon, fees, and your tax band rather than past LISA habits.
For short timelines, consider a cash ISA for liquidity and FSCS protection. For 5 years or more, a diversified Stocks and Shares ISA may offer higher growth potential but with risk. The Lifetime ISA UK can still help before 2028, especially outside London where the £450,000 cap is less limiting. Keep savings automated and review rates regularly.
Final Thoughts
The HMRC ISA update turns the Lifetime ISA UK into a first-home-only tool from 2028, with the 25% bonus paid at completion and no withdrawal penalty. First-time buyers gain flexibility, but savers lose bonus compounding and a popular route for retirement. Over 2024–2027, keep using current allowances if they suit your goals, maintain clear records, and test your deposit plan without assuming bonus growth. Move long-term saving to pensions and Stocks and Shares ISAs where appropriate. Platforms should adjust disclosures, models, and completion processes. Once final rules land, revisit timelines, risk levels, and product mix so your plan still matches your life goals.
FAQs
When do the new rules start for the Lifetime ISA UK?
HMRC signalled a switch from 2028. The account would become first-home-only, with the bonus paid at completion and no withdrawal penalty. Final details and any transition or grandfathering rules are not yet published. Until guidance arrives, continue with your current plan if it fits your goals and keep detailed statements for evidence.
How will the first-time buyer bonus be paid under the new model?
Today, bonuses are added to your balance as you contribute. From 2028, the 25% top-up is expected to be paid at completion of your home purchase instead. That cuts penalty risk if plans change, but it likely reduces compounding because the bonus will not grow inside the account before you buy.
What if I do not buy a home after saving?
Under the new first-home-only approach, HMRC indicates the withdrawal penalty would be removed, but you would not receive the government bonus without a qualifying purchase. Tax treatment and transfer options for non-buyers are still to be confirmed. Keep funds accessible and wait for formal guidance before making major changes.
Is this a Help to Buy replacement for deposits?
It is not the same as Help to Buy, but it works as a Help to Buy replacement for many savers by focusing support on first-home purchases. The big change is the bonus is paid at completion rather than monthly. Mortgage advice, deposit size, and local prices will remain key to your plan.
What should self-employed savers do now?
Review pension options like SIPPs, where you get tax relief on contributions, and use a Stocks and Shares ISA for extra flexibility. Keep using your Lifetime ISA UK if it still fits your timeline before 2028. Model outcomes with and without bonus compounding so your retirement plan stays on track if the rules change.
Disclaimer:
The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.
