I saw in the Budget that Lifetime Isas will be scrapped, and replaced with a new type of Government savings account which is yet to be confirmed.
I have about £10,000 in mine, which I was hoping to use to buy a house, but now I’m not sure what to do.
Will I stop being able to pay into the Lisa, and if so what will happen to the Government bonus I’ve earned so far?
Or will I be able to transfer this into whatever new product is announced – and what if it doesn’t suit me? Will I lose my bonus or even suffer the penalty when I withdraw my money.
Lastly, should I max out my Lifetime Isa this financial year while I still can, or just put the money into my cash Isa? M.K
Many might be worrying about what they should do with their Lisa, and what any changes will mean for them
Harvey Dorset, of This is Money, replies: Since their launch in 2017, Lifetime Isas have been used by millions of people to save for their first home or for retirement.
The products, open to anyone between the ages of 18 and 40, allow people to put in up to £4,000 per year and get a 25 per cent bonus paid by the Government on any funds saved. This means they can get a maximum of £1,000 per year in free cash.
But the product also comes with its flaws. The cap on the value of homes that can be purchased using funds from a Lisa is limited to £450,000, despite house prices having risen considerably since 2017.
First-time buyers in expensive areas, or who need a larger home to accommodate their family, may find this isn’t enough – meaning they have to withdraw the money, forego the bonus and pay a penalty.
Therefore, it’s not recommended that you save for a house deposit inside a Lifetime Isa if you think you are likely to purchase a home worth more than £450,000.
Savers who choose to withdraw their money from the accounts for this reason, or any reason if they are under the age of 55, lose more money than they put in.
There is a 25 per cent withdrawal penalty imposed on the accounts, eating into their own savings as well as stripping away the Government bonus.
> Read more: Lifetime Isa rules explained – and our pick of the best accounts
For example, imagine someone paid in £4,000 in one year and received the £1,000 Government bonus, giving a total of £5,000.
If they then decided to close the account, they would be charged 25 per cent of £5,000, which is £1,250 – effectively losing £250 of their own cash.
In the Autumn Budget, it was announced that the Government will launch a consultation into the Lifetime Isa in 2026, with a view to replace them with a new product for first time buyers.
In the meantime, however, many might be worrying about what they should do with their Lisa, and what any changes will mean for them.
This is Money spoke to Brian Byrnes, head of personal finance at Lisa provider Moneybox to find out exactly what you need to know.
Byrnes says the Lisa remains a fantastic product to help people save for a deposit
Byrnes replies: To give you some immediate reassurance, the Lifetime Isa is not being scrapped, certainly not in the short or medium term. What has been announced is a consultation into a product that will potentially replace the Lisa.
This means that people can still open, contribute to and continue to benefit from the fantastic 25 per cent Government bonus until the replacement product is up and running – which is unlikely to be before April 2028.
With that in mind, it’s best to avoid changing your current financial plans and making any sudden decisions with your Lisa savings that could risk triggering a penalty. Policy announcements like these can take a while to fully take effect, and could even change entirely.
The transition from Lisa to any new product is unclear until we hear more about the upcoming consultation process. And to reiterate, any new Isa product that could be proposed won’t be relevant for several years to come.
As the UK’s largest provider of Lifetime Isas, Moneybox will be engaging with the Treasury and the Government to ensure the best interests of the 1.5million active Lifetime Isa savers will remain at the centre of next year’s consultation and the development of any future Isa policies supporting first-time buyers.
If you have any concerns or worries, it’s worth staying in touch with your Lisa provider to keep up to date about any future changes that could come into effect.
The Lisa remains a fantastic product to help people save for a deposit and for retirement.
If you were planning to use the Lisa for its intended purpose, which is buying a house under £450,000 or saving for retirement, you should continue to use it as normal and not alter your previous plans.
Aaron Banasik says Lifetime Isas still make sense for saving to buy a property
Aaron Banasik, independent financial adviser at Flying Colours, replies: Lifetime Isas are set to be phased out, but for now, nothing changes.
You can still contribute up to £4,000 this tax year and receive the 25 per cent government bonus and your existing balance and bonus remain safe.
Currently, you can only transfer your lifetime Isa to another lifetime Isa provider without penalty.
If you withdraw for any reason other than buying your first home or after age 60, a 25 per cent Government withdrawal charge applies.
This not only removes the bonus but also takes a portion of your own savings.
If your goal is for a first home purchase, continuing contributions makes sense, however if flexibility is more important, consider using your standard cash Isa allowance.
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