The Government has unveiled a new First Time Buyer ISA to replace the existing Lifetime ISA. The First Time Buyer ISA will offer a bonus to savers when purchasing their first home, similar to the setup of the Lifetime ISA. Unlike the Lifetime ISA, which can be used for buying a first home or retirement, the First Time Buyer ISA is exclusively designated for initial home purchases and cannot be utilized for retirement savings.

Under the Lifetime ISA, individuals can save up to £4,000 per tax year and receive a 25% bonus from the Government, equating to a potential free amount of up to £1,000 annually. In contrast, the bonus for the new First Time Buyer ISA will be paid at the exchange stage, allowing savers to access their funds early without facing penalties.

If Lifetime ISA savings are withdrawn for purposes other than purchasing a first home or retirement, a 25% charge is imposed, leading to the forfeiture of the bonus and a portion of the original savings. The specific bonus amount for the First Time Buyer ISA has not been disclosed yet, and it remains uncertain whether adjustments will be made to the property price threshold criteria.

Currently, the property value limit for a purchase using a Lifetime ISA stands at £450,000, a threshold set since the inception of the Lifetime ISA in 2017. Calls have been made by advocates to raise this limit to keep pace with the escalating house prices.

Existing Lifetime ISA holders can retain and continue using their accounts but cannot transfer them to the new First Time Buyer ISA. However, transfers from Help to Buy ISAs will be permitted. A consultation seeking feedback on the First Time Buyer ISA is ongoing and is scheduled to conclude in mid-August.

Rachael Griffin, a tax and financial planning specialist at Quilter, emphasized the importance of enabling access to savings when necessary while maintaining incentives for saving towards a first home deposit.