GUIDE · SAVING FOR A DEPOSIT · Last reviewed August 2026

The Lifetime ISA for first-time buyers, explained plainly

A genuinely useful 25% top-up on your deposit savings — with rules worth understanding before you rely on it.

Rules current as of August 2026 — this scheme is under active government review, see the note on the replacement product below.

The Lifetime ISA (LISA) is a savings account built specifically to help first-time buyers (and, separately, retirement savers) — the government adds a 25% bonus on top of whatever you contribute, up to a yearly cap.

The core numbers

Who can open oneUK residents aged 18–39
Annual contribution limit£4,000 per tax year
Government bonus25% of what you pay in, up to £1,000/year
Contributions/bonus continue untilAge 50
Property price cap£450,000 — unchanged since the scheme launched in 2017
Minimum time held before penalty-free use12 months from your first payment in

To use it toward a home penalty-free, the purchase must be your first home, bought with a mortgage, through a conveyancer or solicitor, and cost £450,000 or less.

The penalty that catches people out

If you withdraw money for anything other than a qualifying first-home purchase (or after age 60), HMRC applies a 25% withdrawal charge — and this is worth reading twice, because it's not just clawing back the bonus.

The charge applies to your whole withdrawal, not just the government's contribution. Example: pay in £4,000, receive the £1,000 bonus, and your balance is £5,000. Withdraw it for a non-qualifying reason and HMRC takes 25% of the full £5,000 — £1,250 — leaving you £3,750. That's £250 less than you actually paid in yourself, not just a loss of the bonus.

This has genuinely caught people out where a purchase fell through, plans changed, or the property they wanted was priced just over the £450,000 cap — all of which trigger the same penalty as withdrawing to spend the money on something unrelated.

Where the £450,000 cap creates a real problem

The cap hasn't moved since 2017, while house prices have risen substantially since. It also doesn't line up with first-time buyer Stamp Duty relief, which applies up to £500,000 — so it's possible to have a property that qualifies for stamp duty relief but not for a penalty-free LISA withdrawal. Worth checking this specifically if you're buying in a higher-priced area.

A replacement scheme is coming — but not yet

In 2026 the government opened a consultation on replacing the Lifetime ISA with a new First-Time Buyer ISA, expected around April 2028. Based on what's been proposed so far: the new scheme would drop the retirement-savings option entirely (first-time buyers only), pay the government bonus as a lump sum at the point of purchase rather than building up monthly, and — significantly — aims to remove the 25% withdrawal penalty.

What this means if you're saving now Nothing changes today. Existing LISAs keep working under the current rules, and you can still open a new one right up until the replacement launches — current holders can keep contributing indefinitely, even after the new scheme exists. If you're already saving toward a deposit, there's no need to pause or wait; just stay aware the withdrawal-penalty rules could look different by the time you're ready to buy.

See how a LISA affects your numbers

Once you know your deposit target from the Homabu calculator, you can work out how many years of LISA contributions would get you there.

Try the calculator →