The Treasury has revealed plans for a revamped Lifetime ISA (LISA) product that will remove the upper age limit and withdrawal charges but the retirement savings component will also disappear.

Chancellor Rachel Reeves revealed in her 2025 Autumn Budget that the government would launch a consultation on a “new, simpler ISA product to support first-time buyers to buy a home” in “early” 2026.

A consultation released by the Treasury this week said there is evidence that the current product is “not working well for many".

The LISA was launched in 2017, aimed at first-time buyers and pension savers.

Under current rules, you can put up to £4,000 a year into a Lifetime ISA and the government adds 25%, up to a maximum of £1,000 per year. This allowance is included within the overall £20,000 annual ISA allowance.

The money can be used either to contribute towards a deposit on a property worth up to £450,000, or to save the money and withdraw it fee-free once you reach 60 years old.

Critics suggest the price cap and age limits as well as the 25% withdrawal charge for "unauthorised" withdrawals make the Lifetime ISA unattractive.

The Treasury consultation acknowledges this and highlights that the number of unauthorised withdrawal charges is increasing year on year, reaching 8% of all accounts opened in 2024/25.

The document also warns that the LISA "may be diverting people from saving into pension products that may be a more appropriate for them".

The Treasury said: “The government is committed to making the aspiration of home ownership a reality for as many households as possible. However, we recognise that the LISA is not working for everyone, and that when people’s circumstances change, they should be able to adjust their finances accordingly.

“We understand that the complexity of the LISA may have dissuaded many providers from offering it, and savers from taking it up, meaning that it is not as accessible as it could be. That is why we are consulting on the implementation of a new, simpler, ISA product to support first-time buyers.”

The government is now seeking views on a replacement product called the First Time Buyer ISA (FTB ISA).

How would the First Time Buyer ISA work?

The new First Time Buyer ISA (FTB ISA) will solely be for the purposes of buying a first home.

The self-employed who can't access auto-enrolment would need to stick with a LISA or focus on a private pension or self-invested personal pension to save for retirement.

Similar to the LISA, there would be cash and stocks and shares options, money saved into the account would go towards your annual ISA allowance and there would be a government bonus, although the level hasn't been announced.

Accounts can only be open from age 18 and there would be no upper age limit.

Subscription limits, property price caps and the level of the government bonus will be announced at a future fiscal event to take account of market conditions and wider public finance context, the Treasury said.

The document added: “Increases to any of these parameters in isolation would come with a cost. A lower subscription limit and/or property price cap could allow for a higher government bonus and would shift the benefits towards lower income savers outside London and the South East.”

There isn't a launch date yet for the product but the Treasury said it would like it to be available "as soon as practically possible".

What is the difference between the First Time Buyer ISA and the Lifetime ISA?

There are a few differences between the FTB ISA and the LISA, including it only being available to first-time buyers.

Unlike the LISA, which has to be opened by age 40 and the bonus can only be earned until age 50, there will be no upper age limit.

The government bonus will be paid as a percentage of subscriptions made, rather than the value of the account, at the point that an individual withdraws funds to purchase their first home.

This means that the bonus is calculated on what an individual has put into the account, minus any withdrawals made, not on any investment growth or savings interest accrued subsequently.

Under the current system, providers pay the government bonus in a LISA each month, when a contribution has been made in the previous month. For example, if you deposit £1,000 in one month, a 25% bonus (£250) would be added in the following month.

But the new FTB ISA bonus will be paid at the point an individual makes a withdrawal for purchasing their first home.

The Treasury said this removes the need for a withdrawal charge and means a saver can withdraw funds, should their circumstances change, without penalty.

Rachael Griffin, tax and financial planning expert at Quilter, said: “Thousands of savers have been charged for accessing their LISA for an unauthorised withdrawal, often because their financial circumstances changed unexpectedly and they needed to dip into their savings. Allowing people to access their money when needed, while still being incentivised to save towards a deposit for a first home, would be a much better design.

“Equally important is the decision to remove the upper age limit. The average age of a first-time buyer has been consistently on the rise, yet the Lifetime ISA effectively shut the door on those who did not get onto the property ladder prior to turning 40. A reformed product with no age limit would reflect a more modern housing market.”

Rachel Vahey, head of public policy at AJ Bell, said moving away from an upfront bonus should make the system simpler but she has warned that savers will lose out on the investment growth they could have earned on the bonus while building up their deposit.

She highlighted that someone paying in £4,000 each year for five years into a Lifetime ISA with a bonus added each year would have built up £28,165 assuming 4% growth net of charges. Under the FTB ISA, assuming the same terms including payments, and that a government bonus of 25% is added when buying the house, the ISA holder would only have built up £27,532.

Vahey added: “For some first-time buyers, that could mean having less money available when they come to purchase a home.”

Who can use the FTB ISA?

The FTB ISA will be available to UK residents over age 18 looking to purchase their first home.

It can only be used with a mortgage, which excludes cash buyers and you will need to have the account open for at least 12 months to become eligible for the bonus.

What will happen to the Lifetime ISA?  

There is no suggestion currently that the LISA will be phased out so accounts can still be opened and used.

Individuals with funds in a LISA will not be able to transfer their money to the new FTB product as they will have already received the government bonus.

But you will be able to use any funds in your existing LISA and those in the new FTB ISA for the same purchase.

Individuals will be able to hold both the new FTB ISA and an existing LISA, but will only be able to save into one in the same tax year.

Regardless of where the property price cap is set, the FTB ISA, LISA and Help to Buy ISA cap will be aligned so that no account holders will lose out, the Treasury said.

To ensure that holders of the Help to Buy ISA do not lose out, the Treasury is also proposing that holders will be able to transfer their holdings into the new FTB product up to the subscription limits.

Additionally, as part of wider ISA reforms, transfers from a stocks and shares ISA to the new cash FTB ISA will be banned.

Paula Higgins, chief executive of the HomeOwners Alliance, said this is “well-intentioned reform” but warned that unless the property price cap is reviewed, it risks fixing one unfairness while leaving another firmly in place.

She said: “The Treasury should update the cap now and future-proof the scheme by ensuring it rises in line with house prices, rather than allowing it to become outdated again.

“First-time buyers need a product designed for the housing market of the future, not one based on prices from nearly a decade ago.”

“I’ve stopped paying into my Lifetime ISA now. I don't think it's worth it,” a friend explained. The rest of the group, mostly renters in their early 30s, nodded in support as she explained her plight – the property cap (which has been frozen at £450,000 since the Lifetime ISA launched in 2017) is becoming more and more restrictive if you want to buy in London. The increasing likelihood of paying an effective 6.25% penalty on your hard-earned savings if your dream home exceeds this threshold makes the account much less appealing – putting money elsewhere gives you more choice.

I remember discussing the Lifetime ISA (LISA) when it first launched, almost a decade ago, with a group of friends who were long term renters in the capital. It was replacing the Help to Buy ISA, and the Lifetime ISA seemed to be a welcome improvement.

Each tax year, you can save up to £4,000 in a Lifetime ISA and get a 25% (up to £1,000) boost from the government. With the Help to Buy ISA, which you can no longer open, you can pay in £200 a month and also get a 25% top up, but the overall maximum bonus is £3,000.

I ran the calculations – if you could afford to max out your Lifetime ISA for more than three tax years, you would end up with a greater bonus via the Lifetime ISA. Plus the 25% boost is paid into your account the following month, rather than needing to be claimed when you come to purchase, so you can benefit from compound interest (you can hold cash and/or stocks and shares in Lifetime ISA).

To get the Help to Buy ISA bonus, the purchase price of a property is capped at £250,000, or £450,000 in London. With the Lifetime ISA, it’s a blanket £450,000.

When the Lifetime ISA launched in April 2017, the average UK house price was £220,094, according to HM Land Registry. In London, the average was £482,779. But as of November 2025, the average UK house price is £271,188, and £553,258 in the capital.

While house prices have risen, the Lifetime ISA cap has failed to keep pace. If it had been uprated, the limit would have grown to £575,550 according to AJ Bell calculations in February 2025. This restricts prospective buyers who face fewer affordable options that fall within the Lifetime ISA boundaries.

Plus, bizarrely, the £450,000 cap doesn't align with first-time buyer's relief on stamp duty land tax (SDLT) – which applies on properties costing up to £500,000. As a first-time buyer you pay no SDLT on the first £300,000 then 5% on the portion from £300,001 to £500,000. Surely it’s time to uprate the Lifetime ISA property value limit to be at least in line with this relief.

How Lifetime ISA withdrawals work

Lifetime ISA withdrawal rules are stringent. You can access the cash penalty-free if you’re buying an “authorised” property (you’re buying a property costing £450,000 or less, with a mortgage, using a conveyancer or solicitor and you first paid into the Lifetime ISA at least one year ago) or if you’re 60 or older. Otherwise, unless you’re terminally ill with less than 12 months to live, you will be charged 25% on withdrawals.

Let’s say you put in £16,000 over the years. With the £4,000 bonus, you’d have £20,000, assuming no growth. You then want to buy a property for £500,000, so withdraw the entire pot. As this is just over the Lifetime ISA cap, you would pay a 25% withdrawal charge of £5,000 – leaving you with just £15,000. This works out at an effective 6.25% penalty on your savings.

A withdrawal charge is understandable given the 25% top up is applied within the tax year, but cutting it to 20% would mean HMRC can recoup the bonus if it’s not used to buy a first home. We don’t need an entirely new ISA product for that – the rate was cut to 20% during the coronavirus pandemic.

The rumoured Lifetime ISA replacement

In the 2025 Autumn Budget, chancellor Rachel Reeves announced the government will publish a consultation in early 2026, on the “implementation of a new, simpler ISA product to support first time buyers to buy a home”. It’ll be offered in place of the Lifetime ISA. It’s promising news – Lifetime ISA reform is long overdue. But HMRC this week suggested the consultation will focus on launching a new product which removes the retirement saving aspect of Lifetime ISAs and the withdrawal charge.

It seems the new product, reportedly due to launch from April 2028, will return to the Help to Buy ISA model, where the bonus is applied when the property is bought. This should “be cheaper” for the government, but potential homeowners would lose out on the “investment growth earned on the bonus during the years they save for their first house”, Rachel Vahey, head of public policy at AJ Bell, points out.

It’s not yet known whether the property value threshold will be changed. I really hope it is. If it remains frozen, the government would be ignoring the main problem with the Lifetime ISA and missing a huge opportunity to genuinely help first-time buyers get on the property ladder amid rising house prices.

I believe the Lifetime ISA is a great product for prospective homeowners, but it’s failing because the property cap hasn’t kept up with house price growth. First-time buyers are being restricted to fewer options as property prices rise, and the frozen threshold is undermining confidence in the product. Why would you commit to locking your savings for a deposit in a Lifetime ISA if you were likely to lose a chunk of the money you put in to buy your first home?

Fixing this flaw by uprating the limit is a fantastic opportunity for the government to win support from millennials and Generation Z. Launching a new product which doesn’t address the frozen threshold would just be a huge waste of time and taxpayers’ money.

A Lifetime ISA (LISA) could be a good option if you're looking to amass a mortgage deposit so you can get onto the housing ladder.

While there are several types of ISA, Lifetime ISAs are specifically aimed at those looking to buy their first home or save for retirement. As well as its tax wrapper, the account is an attractive option for savers because it comes with a 25% government bonus on contributions up to £4,000 annually. The maximum government bonus is £1,000 per tax year.

Research from wealth management platform Moneybox – the UK’s largest provider of Lifetime ISAs – showed that £139.6 million in LISA bonuses were paid out by the government in 2025 to its users alone, and that Moneybox LISAs helped 50,000 first-time buyers take their first step on the property ladder over the course of the year.

“The LISA’s monthly government bonus is a big part of what makes it work,” said Brian Byrnes, director of personal finance at Moneybox. “It keeps people motivated, builds momentum, and helps turn long-term goals into real progress.”

Despite the up to £1,000 per year boost, LISAs have come under intense scrutiny recently. The rules around them are strict, and mean savers could lose out in certain circumstances. This has led to proposals for reform as well as calls to scrap certain elements of LISAs. In the 2025 Autumn Budget, the government said it would publish a consultation in early 2026 on the “implementation of a new, simpler ISA product” to help first-time buyers purchase a home.

We explain how LISAs work, what reform could look like, and ask who LISAs might work for – and who they don’t.

How does the Lifetime ISA work?

Like all ISAs, the Lifetime ISA is a tax-efficient way to save money because any interest and investment gains are tax-free.

The unique appeal of the LISA is that you also get a 25% government bonus of up to £1,000 per tax year. For example, if you pay £2,000 into your LISA in a tax year, you’ll receive a £500 top-up, while if you pay in £4,000 you’ll get the full £1,000.

To open one, you must be aged between 18 and 39. You can then pay in up to £4,000 each year until you turn 50. This money counts towards your annual ISA limit (£20,000 for the 2025/26 tax year). Like other adult ISAs and junior ISAs, you can hold cash or stocks and shares in a LISA.

The money you build up can be used to buy a first home that’s worth up to £450,000. Or, you can use the money later in life, with penalty-free withdrawals permitted once you turn 60. You can also access the account fee-free if you’re terminally ill and have less than 12 months left to live.

The downside is you will get penalised for making a withdrawal for any other reason. The exit charge is 25% of your pot. Not only does this effectively take away the government bonus, but it also eats into some of your own money too.

For example, if you have built up a pot of £10,000, your government bonus would take it to £12,500. An ‘unauthorised withdrawal’ would mean you lose that bonus, plus £625 of your own savings, as 25% of £12,500 is £3,125. So, your initial £10,000 pot would become £9,375.

The exit fee also applies if you try to use the cash on a property costing more than £450,000.

“Anyone who exceeds the £450,000 limit, even by just £1, will be hit with the 25% exit charge on the Lifetime ISA, as their purchase will no longer be within the rules,” notes Laura Suter, director of personal finance at AJ Bell.

The exit fee was previously reduced to 20% during the coronavirus pandemic after an outcry over its unfairness – but it reverted back to 25% in April 2021.

LISA reform: what has been proposed?

Following a review last year, the Treasury Committee, a cross-party group of MPs, published a damning report on LISAs in June 2025.

The report concluded that confusion around the LISA withdrawal charge put savers at risk of losing a significant part of their savings if forced to unexpectedly withdraw the money in unforeseen circumstances, rather than using it for a house purchase or retirement, as intended.

MPs also questioned whether the dual purpose of the LISA – focused on both homeownership and retirement – made the product overly complex and risked deterring savers from more productive pension saving.

This led chancellor Rachel Reeves to announce potential changes to the LISA at her Autumn Budget in November.

This could include scrapping the retirement option to create a new LISA focused specifically on home buying.

But a new property-focused product could also face criticism.

“Our data shows that the Lifetime ISA is doing what it was designed to do – helping first-time buyers onto the property ladder while building strong saving habits along the way,” said Moneybox’s Byrnes. “Replacing it with yet another first-time buyer ISA risks adding complexity rather than solving the real issues. Without clear, meaningful improvements, there’s a danger this becomes more ‘policy theatre’ than genuine reform.

“Any changes… must protect the confidence of the 1.5 million people already using a LISA to save for their future,” Byrnes added.

Why are Lifetime ISA rules unpopular?

There are a few reasons behind calls for LISA reforms – not least because the £450,000 house price cap is considered outdated.

When the Lifetime ISA first launched, the average UK house price was £220,000, according to official data from HM Land Registry. Today, average prices are £268,421, based on HM Land Registry data from January 2026 – a 22% increase. The LISA limit has never been updated to reflect the significant increase in prices.

Furthermore, regional disparities in house prices have created a sense of unfairness.

Some parts of the country have such high average house prices that first-time buyers may struggle to use their LISA funds to purchase the property they want. The average house price in London is £554,000; well above the £450,000 LISA limit. With an average house price of £380,000, a typical house in the South East is also close to the LISA limit.

Research from Moneybox found that Bristol, Belfast and Sheffield were the cities that saw the highest levels of house purchases using ISA funds. London didn’t make the list of the top ten cities for LISA-enabled house purchases.

Having already struggled to get on the housing ladder thanks to sky-high prices, those living in these areas could then be penalised further by the LISA exit fine.

Despite this, the state of the government’s finances could make reform unlikely in this area.

The LISA review concluded last year: “The house price cap for the Lifetime ISA ensures that government spending supports those who need financial assistance the most. Any increase in the price cap is an increase in government spending.

“Before considering any increase in the house price cap, the government must analyse whether the Lifetime ISA is the most effective way in which to spend taxpayers’ money to support first-time buyers.”

Is the Lifetime ISA worth it?

A 25% bonus on top of your savings sounds very attractive. It’s a much higher annual rate than you would be likely to get from other forms of ISA. However, you need to make sure you are comfortable with the risks. An increasing number of savers have been burned by the rules around withdrawals in recent years.

According to the latest annual HMRC LISA statistics, published in September 2025, there was a 30% increase in the number of people making ‘unauthorised’ withdrawals in 2024/25 versus the year before. There were 129,200 people who raided their LISAs, facing a combined £102 million in withdrawal charges, or an average of £790 per person.

Those who needed to raid their pot to pay for immediate spending may have been better off building a larger emergency fund first, held in an easy-access savings account.

The key consideration is whether this savings product matches your financial goals. If you are saving for a first home, a good first step could be weighing up how much the property is likely to cost, and how secure your finances are overall. If you think you might end up breaking the rules, a different savings vehicle might be a better option for you.

Is the Lifetime ISA worth it when saving for retirement?

If you are thinking about using a LISA to save for retirement, there are even more factors to consider.

First of all, you need to weigh up whether your money could be put to better use in a traditional pension, where you can potentially benefit from employer contributions and pension tax relief.

You also need to be careful about what sort of LISA you are using. A cash LISA is not an efficient use of your money for this purpose. Given the length of your investment horizon when saving for retirement, a stocks and shares LISA is likely to be far more productive.

But LISAs can be a good option for some self-employed workers, offering a more flexible alternative to a pension. The government bonus can also help compensate them for their lack of employer pension contributions.

“The sweet spot of the LISA can rest in its ability to boost retirement savings among the self-employed. This is a group that has long under-saved into pensions,” said Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown.

“The 25% bonus on a LISA acts in the same ways as basic-rate tax relief on a pension and the money can be accessed if needed, subject to a penalty. Added to this, any income can be taken tax free.”

A cross-party group of MPs has issued a damning report on the Lifetime ISA (LISA), concluding that it “may not be the most efficient use of taxpayers’ money”, with some savers also at risk of losing out.

The Treasury Committee has spent the past six months conducting a review into whether the savings and investment vehicle is still fit for purpose eight years after it was launched.

The dual purpose of the LISA – allowing savers to put money away for a first home or retirement – makes it “complex” and increases the risk of savers choosing “unsuitable investment strategies”, the committee found.

Its review also pointed to confusion around the LISA withdrawal charge. This risks ISA holders losing a significant part of their savings if they have to unexpectedly draw on the money in unforeseen circumstances, rather than using it for a house purchase or retirement.

MPs were less critical of the house price cap, which prevents savers from using LISA funds to purchase a first home worth more than £450,000, arguing that it “ensures government spending supports those who need financial assistance the most”.

The house price cap is an unpopular feature of the product among savers, with critics arguing that it promotes regional unfairness. The average house price in London is now almost £567,000 according to official figures from HM Land Registry – significantly higher than the cap.

Wealth management firm Quilter said the report “should be the catalyst for serious reform”.

“The Lifetime ISA does not sit comfortably within the wider savings system and trying to make it serve two purposes has only added to the confusion,” said Rachael Griffin, tax and financial planning export at the firm.

“There is a clear opportunity to replace it with simpler, more targeted tools that give people the right support whether they are saving for a home or planning for later life. This should be a major focus of Labour's upcoming ISA simplification programme this summer.”

What is the Lifetime ISA?

The LISA is a popular savings and investment tool, with around 1.3 million accounts open at the end of the 2023/24 tax year, according to HMRC data cited in the Treasury Committee report.

HMRC told MPs that around 6% of the population eligible for a LISA has held one since the vehicle was launched.

Savers can put up to £4,000 into a LISA each tax year and benefit from a 25% government bonus, worth up to £1,000 each year. The £4,000 counts towards your overall £20,000 annual ISA allowance.

You can choose between a cash LISA and a stocks and shares version, depending on your goals, risk tolerance and investment horizon. Any savings interest or investment returns earned within the account are shielded from income and capital gains tax.

To open a LISA, you must be aged between 18 and 39. The money can later be used to purchase a first home worth up to £450,000 or, alternatively, you can use the savings in retirement. Penalty-free withdrawals are permitted once you turn 60.

A common criticism of the LISA is that it comes with a hefty withdrawal penalty if you take the money out under any other circumstances, for example to cover an emergency cost or to purchase a home worth more than the house price cap.

How much is the Lifetime ISA penalty?

The exit charge is 25% of your pot. Not only does this effectively take away the government bonus; it also eats into some of your own money.

For example, if you have built up a pot of £10,000, your government bonus would take it to £12,500. An unauthorised withdrawal would mean you lose that bonus, plus £625 of your own savings, as 25% of £12,500 is £3,125. So, your initial £10,000 pot would become £9,375.

The Treasury Committee’s report points out that an increasing number of people are making unauthorised withdrawals and incurring the withdrawal charge, “which may indicate that the Lifetime ISA is not working as intended”.

According to the latest annual HMRC LISA statistics, published on 19 September 2024, there was a 31% jump in the number of people making ‘unauthorised’ withdrawals in 2023/24 versus the year before. The 99,650 people who raided their LISAs faced a combined £75.3 million in withdrawal charges, or an average of £755 per person.

LISA: A distraction from more efficient pensions?

The Treasury Committee’s report has highlighted some significant shortcomings. As well as concerns about the withdrawal charge, MPs are concerned that the LISA could be diverting people from saving into more efficient pensions.

During the government review, LISA provider Moneybox reported that 80% of contributions to LISAs following a home purchase were to cash LISAs. “That suggests a significant proportion of retirement savers are relying on cash rather than higher-risk and higher-return investments,” the report said.

A diversified portfolio of investments almost always outperforms cash over the long-term – and those saving for retirement often have several decades ahead of them. This is an appropriate time horizon for taking on investment risk. Meanwhile, the value of cash is at risk of being eroded by inflation.

Those saving into a stocks and shares LISA for retirement could find the vehicle more useful, though.

“The sweet spot of the LISA can rest in its ability to boost retirement savings among the self-employed. This is a group that has long under-saved into pensions,” said Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown.

Hargreaves Lansdown data shows that only 21% of self-employed households are on track for a moderate retirement, compared to 36% of households overall. Morrissey calls it a “pressing issue” and one that the LISA could help alleviate.

“Self-employed people can be hesitant to save into a pension because of their variable income and the fact they can’t access their money until at least the age of 55. This is compounded by the fact that they don’t get an employer contribution,” she said.

“The 25% bonus on a LISA acts in the same ways as basic-rate tax relief on a pension and the money can be accessed if needed, subject to a penalty. Added to this, any income can be taken tax free.”

What is the future of the Lifetime ISA?

The Treasury Committee report concluded that the government “must carefully consider whether significant spending on the Lifetime ISA is the best way of achieving its policy objectives”.

While it endorsed the government’s “ambition to support first-time buyers and encourage long-term retirement savings”, it questioned whether the LISA is the most efficient use of taxpayers’ money in achieving these “disparate objectives”.

The report also raised concerns about whether LISA bonuses risk spending taxpayer money in a way that is not “precisely targeted”.

In documents published as part of the Spring Statement, the government confirmed plans to review the current ISA system. Changes to the LISA could form part of this review.

“ISAs are incredibly popular but political tinkering means a patchwork quilt of products has been stitched together over time. The fact we have the Lifetime ISA at the same time as still having Help to Buy ISAs in circulation illustrates how complex the landscape has become,” said Tom Selby, director of public policy at investment platform AJ Bell.

In his view, the LISA is a “fantastic savings and investment product when used correctly”, but there are nevertheless “several design flaws which need to be ironed out”, including the early withdrawal penalty.

“Even the best-laid plans often go awry and it is unfair to punish people with an exit charge that goes beyond simply recovering the government-funded bonus,” he added. “Reverting to the system used during the pandemic, when the penalty only matched the original bonus received on the account, would be a fairer approach.”

MPs have considered this as part of the review but pointed out that the case for reducing the charge “must be balanced against the impact on government spending”.

“We cannot have a risk-free option where you are investing for the long term, but there is no charge if you take it out… There has to be some penalty or withdrawal charge in a product such as this,” said Treasury minister Emma Reynolds.

She added that there “could be a case for changing the withdrawal charge” – some have suggested reducing it, for example – but added that the government “would have to find money from elsewhere in order to do that”.

First-time buyers are being urged to consider where they’re planning on purchasing before stuffing all their savings into a Lifetime ISA (LISA).

The popular savings vehicle offers a juicy government bonus to those saving for their first home – but the current rules cap the value of the property you are allowed to buy at £450,000.

Rising house prices mean that the average property already exceeds the LISA cap in 54 local authority areas in England, based on official data from HM Land Registry.

This cap is creating challenges for many buyers, particularly those in the South and South East, who risk paying a penalty or alternatively having their hard-earned savings trapped in the account until they turn 60.

As well as prime London spots like Kensington and Chelsea, average property prices in areas outside of the capital like Windsor & Maidenhead and Buckinghamshire exceed £450,000. The average house prices in suburban areas like Hounslow and Enfield also exceed the limit.

Meanwhile, separate analysis from investment platform AJ Bell suggests that first-time buyers could be priced out of using a LISA in 62 UK regions by 2029, based on the cost of a typical terraced house. The cost of a flat could also exceed the threshold in 19 regions by the same date.

“Many aspiring homeowners who’ve worked hard to save for a deposit now face the prospect of properties in their desired location exceeding the upper limit in a Lifetime ISA,” said Dan Coatsworth, investment analyst at AJ Bell. “They must either buy somewhere else with lower property prices or pay the 25% penalty to withdraw their money from the Lifetime ISA.”

He warned: “Taking a hit via the penalty charge could see an aspiring homeowner left with a smaller deposit than they would have otherwise had, meaning they may have to take out a bigger mortgage which could also come with a higher rate of borrowing.”

It is possible that reforms are coming after a group of MPs launched a review of the Lifetime ISA in January. However, for now, savers should be cautious if they are thinking about buying a property in an area where prices are rapidly approaching (or already exceed) the LISA cap.

We take a closer look at where those areas are.

The 62 areas where house prices could exceed the Lifetime ISA cap by 2029

AJ Bell has calculated that first-time buyers in 62 regions could be priced out of using their Lifetime ISA by 2029, based on the price of a terraced house, up from 39 regions today.

The platform arrived at this figure by taking data from Nationwide’s house price index, and adjusting it in line with house price forecasts from the Office for Budget Responsibility (OBR).

^{Source: AJ Bell. Based on Nationwide house price index as of January 2025. Prices increased each year until 2029 in line with house price growth forecasts from the Office for Budget Responsibility (OBR).}

The above table includes areas outside of London like the Hertfordshire borough of Watford – popular with commuters thanks to its access to the Metropolitan line.

Areas like the London borough of Croydon also feature, despite previously being known for its relative house price affordability.

Those considering buying a flat rather than a house are also at risk of being unable to use their Lifetime ISA in parts of the UK. Thirteen local authority areas already exceed the threshold, and a further six are expected to be added to the list by 2029.

^{Source: AJ Bell. Based on Nationwide house price index as of January 2025. Prices increased each year until 2029 in line with house price growth forecasts from the Office for Budget Responsibility (OBR).}

What happens if you exceed the LISA cap?

If you withdraw money from your LISA to buy a property which costs more than the £450,000 cap, you will be slapped with a 25% penalty which could leave you worse off than when you started.

As well as wiping out the 25% government bonus, the penalty takes a chunk of your hard-earned savings – something which savers and industry experts have criticised as unfair.

For example, if you have built up a pot of £10,000, your government bonus would take it to £12,500. If you made an “unauthorised withdrawal”, you would lose that bonus, plus £625 of your own savings, as 25% of £12,500 is £3,125. This means your initial £10,000 pot would become £9,375.

According to the latest annual HMRC LISA statistics, which were published on 19 September, there was a 31% jump in the number of people making “unauthorised withdrawals" in 2023/24 versus the year before. The 99,650 people who raided their LISAs during this period faced a combined £75.3 million in withdrawal charges, or an average of £755 per person.

Will the LISA cap be scrapped?

Despite challenges with the house price cap, the LISA can be an attractive savings tool. A 25% return is considerably higher than you could hope to achieve on a regular cash savings account. It is also more than you would earn in a regular year in most stock markets.

Furthermore, the Treasury Committee (a cross-party group of MPs) recently launched a review of the Lifetime ISA to assess whether it is still fit for purpose. It is possible that the review will result in reforms.

The house price cap is one of the areas being looked at as part of the review, including whether it should be raised or even removed. MPs have also sought views on whether the withdrawal penalty should be scrapped.

“To ensure its continued success, we believe future-proofing the LISA is essential. Doing so would give the next generation of first-time buyers the confidence and flexibility they need to save for their first home and beyond,” said Brian Byrnes, head of personal finance at Moneybox, the largest LISA provider.

Transferring an ISA can bring with it a number of perks, such as better customer service, higher interest rates or lower fees.

But there are rules to consider before doing a transfer to make sure you don’t lose any tax-free benefits.

Furthermore, a major rule change is coming into effect from April 2027.

From this date, the transfer of money from stocks and shares ISAs to cash ISAs will be banned and a charge will be applied on any interest accrued on cash held in a stocks and shares ISA.

The change is being brought in by the government as ministers look to push more savers towards investing in the stock market.

But experts have warned the change could make for a more siloed and isolated ISA market.

Rob Morgan, chief investment analyst at wealth management firm Charles Stanley, said: “It (the change) makes it harder for people to change course from investing as their circumstances evolve, especially in the absence of cash equivalent options in a stocks and shares ISA,” Morgan said.

But for those considering transferring an ISA under the current rules, we’ve explained all the need-to-knows below.

How to transfer an ISA to another provider

The main thing to remember when transferring an ISA is to not withdraw the money first.

Instead, you need to contact the provider of the ISA you want to transfer to. The provider should give you an ISA transfer form for you to fill in.

If you don’t follow this process while transferring a stocks and shares or cash ISA, they will lose their tax-wrapped status.

Bear in mind, not all ISA providers will allow you to transfer your account to them, so make sure you check beforehand.

Also note that if you’re transferring from stocks and shares ISA to another stocks and shares ISA, you may have to pay an exit fee to your current provider.

How long does it take to transfer an ISA?

It takes considerably longer to transfer an ISA than a standard bank transfer.

The transfer time varies depending on the provider a person is using, however, cash ISA transfers are the fastest, typically taking no longer than 15 working days.

This will usually be slightly longer for other types of ISAs, with stocks and shares ISAs and innovative finance ISAs usually transferring within 30 days. This is because there are various additional steps to take into consideration with this type of account. For example, a stocks and shares ISA may have to be re-registered if a person is switching to a new provider.

There are ways savers could potentially make the process of transferring an ISA quicker. Discussing the transfer with both current and new providers will likely help to smooth out the process, as will ensuring all paperwork is accurate and up-to-date.

Experts typically suggest busy transfer times, such as the end of the tax year, should be avoided for those hoping to secure a fast transfer.

If you are unhappy with the length of time your ISA transfer has taken, you should contact the ISA provider. If you deem the response unsatisfactory, you can directly contact the Financial Ombudsman Service, with evidence of your transfer request.

Our guide on ISAs vs savings accounts looks at the pros and cons of these types of accounts.

Does an ISA transfer count as a new ISA?

An ISA transfer does not count as a new ISA subscription, and while you may need to set up a new account to move your money to, the savings can also be transferred to an already existing ISA.

The money you have already put into your ISA will remain tax-free even if you transfer it to another ISA, and you can continue to build on the savings you have already amassed.

There isn’t a limit on the number of times a person can transfer an ISA in one year.

Does transferring an ISA affect the annual ISA allowance?

An ISA transfer does not count towards your annual ISA allowance.

If you make a subscription to an ISA during the current tax year, that contribution will count towards your annual allowance of £20,000. This is regardless of whether or not you later transfer it to another ISA. Any transfer you make of the subscription will not reset or increase the limit.

For example, if you deposit £1,000 into an ISA, you will have used £1,000 of the £20,000 allowance, leaving £19,000 available. However, if the money is then transferred to a different ISA, the transfer itself will not count as a new subscription. Therefore, the ISA investor will still have £19,000 of the allowance remaining in the same tax year.

There have also been recent rule changes concerning ISAs that benefit those who wish to hold multiple accounts, and potentially make multiple transfers.

There are four different types of ISA (cash ISAs, stocks and shares ISAs, Lifetime ISAs and innovative finance ISAs) and previously, savers could only put money into one of each type of ISA each tax year.

As of 6 April 2024, you can now open and pay into more than one ISA of the same type in the same tax year, as long as the amount does not exceed the maximum allowance of £20,000. This doesn’t include the Lifetime ISA. You can only pay into one Lifetime ISA each tax year, up to a limit of £4,000 (which is included in the annual ISA allowance).

The change allows "greater flexibility”, explains Andrew Prosser, head of investments at InvestEngine. He adds that it lets savers and investors “try out different accounts if they find a better offer elsewhere, such as lower account fees and the opportunity to invest in different types of funds”.

While transfers between providers do not impact ISA allowances, savers will have to bear potential fees in mind when moving their money. In certain circumstances, there may be a penalty payment or a fee for transferring an ISA, which is why it is important to read the terms set out by both old and new providers.

A new provider may also levy an ongoing charge or a platform fee once the ISA is transferred. Checking this before the transfer process begins could reduce the chances of a nasty surprise later down the line.

We compare cash ISAs versus stocks and shares ISAs in a separate piece.

Can you transfer an ISA to another person?

The simple answer is no. ISAs cannot be transferred to another person.

"The tax benefits for an ISA account are only intended for the person who opened it. If you'd like to give the money in your ISA to someone else, you'd have to close the account and transfer it there,” says Prosser.

There are, however, certain ISA transfer rules that come into play if your spouse or civil partner passes away.

In this case, you can inherit their ISA allowance, but will need to contact the relevant provider for further information.

Since April 2015, people have been able to make use of the ISA benefits belonging to their deceased spouse or civil partner if they passed away on or after 3 December 2014.

This does differ to inheriting the money contained within the ISA, as these funds are allocated to whoever was nominated in the individual's Will.

Can you transfer shares from a general investment account into an ISA?

You can transfer funds from a general investment account (GIA) into a stocks and shares ISA, although it will count towards your annual £20,000 allowance.

HMRC doesn’t allow the direct transfer of investments from a non-ISA account to an ISA, with investments having to be sold first.

However, ISA providers can carry out a ‘Bed and ISA’ transaction. It involves selling shares or funds held within a GIA and then repurchasing them within a tax-wrappered ISA.

The time it takes for a Bed and ISA to complete depends on the provider, but it can be as long as 10 working days.

Can you do partial transfers?

You are allowed to make partial transfers between ISA providers, regardless of when the money was paid into that account. This is following a rule change which took effect in April 2024.

Under the old rules, customers had to transfer all of the funds from one ISA of that type from the existing tax year or nothing at all. The change means you can keep some money with your existing provider and retain that ISA.

What are the benefits of transferring an ISA?

There are several benefits to transferring an ISA. For example, finding a new ISA may help you secure a better return on savings or investments.

Transferring an ISA to another can help you consolidate your ISAs and make it easier to manage them all too.

Additionally, an ISA transfer can help with risk management. For example, cash ISA savers may wish to avoid the eroding impacts of inflation by putting their money into a stocks and shares ISA. This does carry risk, and investors could get back less than they initially put in. However, in the long term, there is potential to grow your money.

In contrast, those looking to substantially reduce risk for short-term goals may wish to transfer money out of investments and into cash savings, particularly if they wish to access their money in the near future.

Transferring a stocks and shares ISA from one provider to another can mean lower ongoing fees like annual platform charges.

Transferring an ISA can bring the perk of better customer service too, if you’re unhappy with your current provider’s level of support.

Lifetime ISAs launched nine years ago, offering a 25% government bonus on savings.

The idea was to help first-time buyers get on the property ladder and to boost pension savings among under-40s. But little has changed with the Lifetime ISA (LISA) since it launched, despite house prices and living costs going up.

Today, the government said it is launching a review of the Lifetime ISA to understand if the product is still fit for purpose.

In total, more than 1.5 million people are currently saving with a LISA, according to HMRC data. Almost 230,000 people have already used the savings vehicle to help them buy a property.

Despite the broad take-up, news of the review will be welcomed by savers and financial experts alike. Although the LISA offers some attractive perks, it also comes with a hefty penalty for those who do not adhere to the terms and conditions.

Kalpana Fitzpatrick, digital editor of MoneyWeek, said: “Lifetime ISAs are great in theory, but they do have several issues with strict rules. For example, there is a cap on the cost of your property at £450,000. If your property costs more, you face a penalty fee.

“You also get penalised if you withdraw the cash for anything other than a property or your pension. At 25%, this penalty means some people end up with less than they put in, as the fee is for the total amount you have in there.

“Some savers have also been caught out by not knowing that you need to have had the LISA for at least 12 months before you can use it, and may have missed out when buying a house as a result.”

The 25% withdrawal penalty is one of the areas the Treasury Committee is gathering views on. It also wants to understand whether the house price cap should be raised in line with inflation or removed.

Other areas of focus include whether the LISA is a suitable pension savings product, and whether it offers the government good value for money.

How does a Lifetime ISA work?

The LISA was first announced by former chancellor George Osborne in his 2016 Budget, before being launched in 2017. It is a tax-efficient savings and investment vehicle for people under the age of 40.

Savers can put up to £4,000 of their overall ISA allowance in a LISA each tax year. The government will pay a 25% bonus on whatever you save. This means the government will contribute £1,000 a year, if you maximise your £4,000 allowance.

Savers can put their LISA contributions in either a cash or a stocks and shares account. Cash LISAs are more common, particularly for those who are planning to use the funds in the near term to buy their first home. As with any other ISA, income and capital gains are tax-free.

As introduced previously, there are some strict rules around withdrawing the money. If you break the rules (for example, withdrawing the funds to buy a house worth more than £450,000), you will be slapped with a 25% charge. This withdrawal penalty can end up costing more than the total amount the government paid in.

For example, if you contributed £4,000 one year and paid it into a 4% cash account (alongside the £1,000 government bonus), your savings would have grown to £5,200 by the end of the year. If you then withdrew the funds and were slapped with the 25% penalty, you would have to give up £1,300.

Hargreaves Lansdown, the UK’s largest platform for private investors, is cutting the fees on its Lifetime ISA (LISA) and getting rid of them altogether for its Junior ISA in a bid to attract investors looking to pass on generational wealth.

Around 80% of UK wealth is held by those over 45. Younger people have become increasingly disadvantaged when it comes to investing and saving. Wages are rising, but failing to keep up with inflation which is also making it more difficult to save.

First time buyers are also struggling to get onto the property ladder due to higher mortgage rates and record rents, which make it harder to save for a deposit.

The platform estimates over a third of Britain will receive an intergenerational wealth transfer over the next 30 years – but the tax implications that come with these can make it difficult for younger generations to fully benefit.

However younger generations can protect their wealth through the Lifetime ISA, which is aimed at those under 40 to help them save for their first property or a pension.

Savers can store up to £4,000 per tax year in a LISA, and the government will add a 25% bonus to this up to a maximum of £1,000 a year.

Furthermore parents or grandparents wanting to set up a nest egg for their children can make use of the £9,000 allowance that comes with a Junior ISA.

Hargreaves Lansdown’s new fees

To attract more customers to its platform Hargreaves Lansdown has cut the fee on its LISA, from 0.45% to 0.25% – meaning the first £1m of fund investments will be charged at 0.25%.

Equities are charged at 0.25%, and capped at £45 per year. The changes will apply to new and existing LISAs.

Junior ISAs will not be subject to any platform fees. HL is also removing trading commission and FX charges for online lump sum trading. Regular savings, dividend reinvestment and telephone dealing charges remain.

The changes come into effect from 13 March, and will also apply to new and existing JISAs.

HL charges 1% for automatic reinvestment with a minimum of £1 and a maximum of £10 per deal.

It’s estimated that a third of Britain will receive an intergenerational wealth transfer over the next 30 years, and protecting as much of this from tax will be a priority for many, especially as inheritance tax payments rise and the thresholds remain frozen.

How do other platforms compare?

These are the charges for other major platforms in the UK:

An Individual Savings Account (ISA) is a tax-efficient vehicle to grow your savings and/or invest in stocks and shares.

Investors and savers can shield money from the taxman with these types of accounts, and their usage is on the rise.

The number of UK adults adding money into all adult ISAs reached 15 million in 2023/24, up from 12.4 million in the previous tax year, the latest figures from HMRC show. It marks the first time the figure exceeded 15 million in 12 years.

Holding savings in ISAs has been particularly important since 2022, when interest rates started rising rapidly. Higher interest rates have led to bigger returns on savings which increase the likelihood of having to pay income tax.

However, some changes to ISA rules are looming, which could make it difficult for savers to shield their cash from the taxman.

We explain everything you need to know in our ISA guide, including how they work, what sort of investments you can hold in a stocks and shares ISA and how to transfer an ISA.

What are the main types of ISA?

There are four main types of ISA: cash, stocks and shares, innovative finance and Lifetime ISAs (LISAs).

You can open one of these accounts if you’re 18 or older, although you can’t open a LISA if you’ve turned 40.

Help to Buy ISAs fall under the cash ISA category, but since November 2019, it’s not been possible to open a new account. Anyone who opened an account before this date and still has it open can pay into it until November 2029 and has to claim the bonus by November 2030.

You can also open Junior ISAs (JISA) for children aged under 18.

We explain each type of ISA in more detail below.

ISA rules: How ISAs work

ISAs are a tax-efficient way to save or invest. You don’t pay income tax, dividend tax or capital gains tax (CGT) on any of the returns you generate from your ISA holdings: effectively, everything within them is shielded from the taxman.

The amount you can contribute into an ISA is limited to £20,000 per year (across adult ISAs).

That £20,000 allowance can be spread across as many adult ISAs as you want, but you can’t exceed it in total.

For example, you could save £5,000 into a cash ISA, then put £15,000 into a stocks and shares ISA. The annual allowance is just an upper cap on contributions – you don’t have to max it out every year.

Any allowance you don’t use in a given tax year is lost; you can’t carry your allowance over into the next year.

There are also limits within the overall allowance. For example, you can only put up to £4,000 per year into a LISA. If you used the full LISA allowance, you’d only have £16,000 left to put into other types of adult ISAs in that tax year.

From 6 April 2027, savers under 65 will be limited to putting a maximum of £12,000 into a cash ISA per tax year. This still counts towards the overall £20,000 annual ISA allowance. Transfers of funds from stocks and shares ISAs to cash ISAs will also be banned as part of the changes.

A Junior ISA has its own allowance of £9,000 per tax year.

How cash ISAs work

A cash ISA is essentially a savings account where you pay in money and earn interest on your savings. The key difference to a traditional savings account is that interest earned on a cash ISA is tax-free. This means regardless of how much interest you earn in an ISA, you won’t pay any tax on it.

This is different to those holding a standard cash savings account, where income tax is owed on any savings interest which exceeds tax-free allowances, such as the personal savings allowance.

There are several different cash ISAs to choose from:

• An easy-access ISA is a useful home for your emergency savings pot, as these allow you to withdraw money when you need it without incurring a penalty – some may limit how many withdrawals you can make before hitting you with a charge.
• Fixed-term ISAs pay an agreed interest rate over a set period of time, typically one to five years, much like a savings bond. They tend to offer higher rates than easy-access ISAs, but in exchange, you have to leave your money untouched or risk paying a penalty.
• Flexible cash ISAs allow you to take money out and replace it during the same tax year, without that amount being deducted from your ISA allowance. For example, you could pay in £20,000, then withdraw £5,000, and a flexible ISA would allow you to pay the £5,000 back in during the same tax year. Not all cash ISAs offer this “flexible” status, so check with the bank or building society, especially if you plan to use the account as an emergency savings pot where you might need to make withdrawals.

You can currently contribute £20,000 to a cash ISA each tax year, but this would leave you with nothing left out of your annual ISA allowance.

Alternatively, you could decide to split the total – such as by contributing £10,000 to a cash ISA, £6,000 to a stocks and shares ISA, and £4,000 to a LISA.

Before 6 April 2024, you could only open and pay into one cash ISA and one stocks and shares ISA per tax year. Now, you can hold multiple ISA accounts, of the same type, within the same year.

In terms of transferring an ISA, you’re free to move a cash ISA to one that pays a better interest rate or one that better suits your needs without affecting this year's allowance – as long as you complete the correct transfer forms.

For your money to retain the all-important tax-free status, contact the ISA provider you want to move to and fill in the transfer form.

If you simply withdraw the money and then deposit it into an ISA, your money will no longer be in the tax-free wrapper. The value of the funds you move will instead come out of your ISA allowance for that year.

Cash ISA transfers should take no longer than 15 working days, according to the government. Other types, like stocks and shares ISAs, can take around 30 calendar days. You’re also free to move to a different type of ISA, such as from cash to stocks and shares, or say, from innovative finance to cash.

How stocks and shares ISAs work

Stocks and shares ISAs, also known as investment ISAs, allow savers to invest in a broad range of assets. Any investment gains you make will not be subject to capital gains tax, income tax or dividend tax. The only tax you may have to pay is stamp duty when buying shares.

The best way to think of a stocks and shares ISA is an investment account with a tax wrapper around it. Like a general investment account (GIA), you can buy everything from shares to bonds to property in the form of real estate investment trusts (REITs), plus open-ended funds (Oeics) and exchange-traded funds (ETFs).

You can choose ready-made investment portfolios (think Moneybox, Wealthify and J.P. Morgan Investing) for your stocks and shares ISA. These are portfolios put together by professionals and are useful if you’re a beginner and looking to take a hands-off approach to investing.

There are also DIY stocks and shares versions (providers include Hargreaves Lansdown, AJ Bell, Charles Stanley Direct and many others), where you can pick your own funds, bonds and shares.

As with any investment account, ensure you check the fees charged by the ISA provider which can chip away at your returns. There could be an annual fee for a stocks and shares ISA, fees to trade investments, and possibly an exit charge.

To move a stocks and shares ISA, ask your new provider for a transfer form.

How Lifetime ISAs work

Lifetime ISAs are the most generous member of the ISA family, with a government bonus of up to £32,000 on offer, over time. Launched in April 2017, they have the dual aim of helping those under 40 get onto the property ladder or save for retirement.

To open one, you must be aged between 18 and 39. You can contribute up to £4,000 each tax year until you’re 50, and must make your first payment into your account before you’re 40. The money you pay in counts towards your £20,000 ISA limit. You can hold cash or stocks and shares in a Lifetime ISA, or a combination of both.

The best bit about LISAs is you get free cash from the government with each deposit. You’ll get a juicy 25% bonus worth up to £1,000 every tax year, depending on your contribution. For example, if you pay £2,000 into your LISA this tax year, you’ll receive a £500 top-up.

You can only access the money penalty-free at age 60 or over, or to buy your first property up to the value of £450,000. You can also withdraw your cash if you’re terminally ill and have less than 12 months left to live.

If you are using a LISA to buy your first home, you must purchase the property at least 12 months after you’ve made your first payment into the LISA.

While the government bonus is a great incentive to open a LISA, bear in mind that if you use it for anything other than the three above scenarios, you’ll be hit with a 25% withdrawal charge, which means you could end up with less than you put in.

The government is launching a consultation in 2026 on the rollout of a new “simpler” product to help first-time buyers get a home.

The retirement option on the LISA could be scrapped as part of the consultation, according to reports.

How Junior ISAs work

If you have children or grandchildren aged under 18, you can save into a JISA for them.

These can be cash or the stocks and shares variety. The account has to be opened by a parent or guardian, but once it’s set up, anyone can add money to it up to £9,000 per tax year.

As an example, if you have paid £2,000 paid into your child’s cash JISA on 15 April 2025, only £7,000 could be paid into their stocks and shares JISA in the same tax year.

The £9,000 JISA limit is separate to the £20,000 allowance for adult ISAs.

As with adult ISAs, any investment gains or interest earned within a JISA is totally tax-free.

The child cannot access the money until they turn 18. As soon as they reach their 18th birthday, they can spend it – or save or invest it – as they choose. This means alongside the cash you deposit into their account, try and also deposit good financial habits into their brains by teaching them about money.

If your child has a Child Trust Fund (CTF) – those born before January 2011 may have one – consider moving it into a Junior ISA. Simply request a transfer form from the Junior ISA provider. Cash Junior ISAs typically have higher interest rates than CTFs, while stocks and shares Junior ISAs generally have lower fees than the CTF versions.

How Innovative Finance ISAs work

Innovative Finance ISAs (IF ISAs) were introduced in 2016 to allow people to invest some or all of their £20,000 annual allowance in peer-to-peer lending and enjoy tax-free returns.

This involves lending your money directly to businesses and individuals without a middleman, such as a bank, in return for interest. Providers include Triodos Bank and EasyMoney.

They are the least popular ISA, and remain a niche product. In 2023/24, just 10,000 people added money into an IF ISA, according to the latest HMRC data. However, in 2024, the range of investments expanded, with long-term asset funds and open-ended property funds with extended notice periods allowed inside Innovative Finance ISAs.

Crypto ETNs – an ISA-eligible instrument that tracks the price changes of cryptocurrencies – can be held in an IF ISA from the start of the 2026/27 tax year.

These developments could potentially increase the popularity of IF ISAs.

IF ISAs are considered the most risky ISA option. Because each ISA provider tends to specialise in a particular niche – small businesses or property developers, for example – it is difficult to diversify across different sectors.

How Help to Buy ISAs work

It’s no longer possible to open a Help to Buy ISA, as they have been replaced by Lifetime ISAs. However, if you already have one, you can continue paying into it until November 2029.

You can contribute up to £200 each month and the government will then top up your savings by 25% (up to a maximum of £3,000) when you buy your first home. You can claim the bonus until November 2030. The home you buy must be priced at £250,000 or less (£450,000 or less in London), be the only property you own and where you intend to live.

As it stands, LISAs are more flexible as the maximum property price is £450,000 for the whole of the UK, you can use it as a retirement nest egg if you don’t end up buying a home, plus the maximum amount you can add into one each tax year is higher.

Are ISAs subject to inheritance tax?

ISA savings and investments do form part of an estate for inheritance tax (IHT) purposes. That said, married couples and civil partners are allowed to pass their estate to their spouse tax-free when they die.

ISAs can also be passed on and retain their all-important tax-free status.

The additional permitted subscription (APS), also known as the inherited ISA allowance, gives the beneficiary an extra ISA allowance, allowing more tax-efficient savings to be made.

For example, say you have £100,000 in your ISAs. When you die, your husband, wife or civil partner will get a one-off £100,000 ISA allowance, in addition to his or her £20,000 annual ISA allowance.

This allowance can be used by a spouse or civil partner, regardless of whether the money in an ISA is left to them or not.

So even if you decide to leave the money in your ISAs to someone else in your family, your spouse is still entitled to the extra allowance to the value of the assets held in your ISAs.

If that £100,000 of ISA assets was left to a child, your spouse would still be entitled to an increased ISA allowance of £100,000 and could use their own money to fund it.

If you've been contributing to a Junior ISA for your child or grandchild, payments may be subject to inheritance tax if you leave an estate worth more than £325,000. However, rules surrounding 'gifting' will apply. You can gift up to £3,000 each year, without incurring IHT. There’s another gift allowance that allows you to hand out £250 to a person each year. It can't be used on somebody you've already used a gifting allowance on, however.

There will be no IHT to pay if the money was paid into the Junior ISA seven or more years before your death.

We explore this topic further in our guide: Can I shield my ISAs from inheritance tax?

Are ISAs worth it?

ISAs are considered worth it because they shield your interest, capital gains and dividends from tax.

You can also pass on the value of your ISA to a spouse or civil partner tax-efficiently.

However, you should only be opening and adding money into an ISA if you don’t have any debts to pay off or credit card balances to clear.

One major drawback to ISAs is the £20,000 annual allowance, but there is no harm in using this allowance first then putting any additional money into other accounts like a general investment account or standard cash savings account. You can earn some interest on savings without being taxed via the personal savings allowance.

When and why were ISAs introduced?

ISAs were introduced in the UK in 1999, under then-chancellor Gordon Brown. While the annual allowance is now £20,000, it started at £7,000.

ISAs replaced the earlier personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs).

The main reason ISAs were introduced was to encourage those on middle and lower incomes to save their money without being subject to tax.

The new kid on the block offers a generous incentive to save and may even come to replace pensions.

Meet Lisa, the new kid on the tax-free savings block. From 6 April this year, lifetime individual savings accounts will offer yet another option for savers and investors thinking about how to use their annual Isa allowance. The big draw of the new account is that the government is offering bonus cash to encourage people to invest.

For every £4 you contribute to a Lisa, it will add £1, up to a maximum annual bonus of £1,000 on a £4,000 contribution. You can put more than this into your Lisa, up to the annual Isa allowance (this rises to £20,000 in 2017-2018), but you'll only get the 25% bonus top-up on that first £4,000.

Still, this is a generous incentive, worth the same as the tax relief investors in private pension schemes get if they're basic-rate taxpayers. And that's significant Lisas have been designed to offer people another way to save for old age; in fact, some advisers believe that Lisas may even replace pensions as people's primary retirement savings vehicle, particularly if the government changes the rules on pensions tax relief.

How do they work?

First the basics. To open a Lisa, you must be aged between 18 and 39 at the start of the tax year. Your contributions (plus the bonus) can be invested in a range of assets, including both cash and shares, depending on the Lisa provider you choose. The amount you pay in then counts against your annual allowance for the year if you have some of your allowance left over, you can still have a regular cash Isa, a stocks and shares Isa, or even one of the new innovative finance Isas, as long as you don't exceed the annual cap.

Once you've got a Lisa, you can contribute each year until you turn 50 and claim the bonus in each of those years. This means that the maximum free cash on offer is £32,000 to get that, you would have to open an account at age 18 and then pay in at least £4,000 a year for the next 32 years. Savings and investments in a Lisa grow free of tax on income and profits, as with other types of Isa, but the rules on withdrawals are more complicated.

This is because Lisas are being marketed as useful for two very different financial planning goals. Some will use the schemes to save money for the deposit on a first property; if you're doing that, you can make withdrawals at any time after 12 months of opening the Lisa, as long as you use the cash to buy a first home worth no more than £450,000.

Others will see Lisas simply as a long-term savings plan. That's fine too, but if you're not using the money for a first property purchase, you're supposed to wait until at least age 60 before making withdrawals. Earlier withdrawals will be allowed, but you'll have to pay a 25% charge in other words, you not only give back the bonuses you received from the government, you also hand over a chunk of any money you've made. The only exception to this rule is if you're diagnosed with a terminal illness, although if you die, your Lisa can be passed on to your spouse or civil partner.

Should you invest?

So, are Lisas for you? If your current financial priority is to save enough for a first home, Lisas could be a good option the government top-up is free cash, your savings will grow tax-free, and the scheme is more attractive than the help-to-buy Isa it is eventually scheduled to replace. By contrast, the debate over the merits of Lisas for retirement-planning purposes at least as an alternative to traditional pensions is more balanced. Tax is one key consideration.

For basic-rate taxpayers, the Lisa bonus is worth the same as the tax relief on a private pension. Moreover, when they cash in their Lisas, there will be no tax to pay, whereas only 25% of a private pension can be taken tax-free. Higher-rate and additional-rate taxpayers are also hit by this latter restriction, but the upfront tax relief on pensions they currently get is worth more than the government is offering via Lisas.

Bear in mind, though, that if you have the option of joining a pension scheme at work, you'll be entitled to a contribution from your employer on top of your own. This support isn't available in Lisas and may more than offset the additional tax efficiency. Pensions provider Scottish Widows looked at two basic-rate savers making £100 payments into a Lisa and a private pension, and then earning a 5% return for ten years on their money. Taking into account tax relief and bonus payments, both savers would have a pot worth about £204 at the end of this period.

The Lisa saver would get all of this cash tax-free, while the pension saver would have to pay basic-rate tax on 75% of it, reducing the sum to around £173. Assume, however, that the pension saver is entitled to a contribution worth 3% of pay from their employer; then their fund would be worth £326 after ten years, or £277 after tax.

Flexibility versus self-discipline

You also need to consider the issue of flexibility. You have to wait longer to draw down funds from a Lisa with no penalty-free access before age 60 than a private pension (accessible from the age of 55). On the other hand, even after the recent pensions freedom reforms, the tax system effectively imposes limits on how you use pension savings in retirement, whereas you'll be free to use Lisa cash as you see fit. That said, the rigid rules on pension withdrawals could stop you from succumbing to the temptation to dip into your savings, whereas the ability to withdraw early from Lisas as long as you pay the penalty might be hard to resist.

The final consideration is how much you may invest. With an effective annual limit of £4,000 (since there's no bonus on contributions above this amount), Lisas are much less generous than private pensions, where the annual allowance for most is £40,000. If Lisas are your only savings vehicle, your ability to save large sums will be compromised.

For many savers, this isn't a binary question: since Lisas offer some advantages over pensions, the most sensible option may be to use them alongside your pension, but not as a replacement. If putting cash into a Lisa requires you to reduce your pension saving, think carefully, particularly if you have access to an employer's contribution. But using both may be a good way to spread risk and to protect against future changes in government policy.

Which provider should you go with

Lisas are being launched with unusual haste they'll be available from April, just 13 months after the government unveiled preliminary details of the scheme in the budget last March. As a result, some product providers say they haven't been given enough time to get Lisa products up and running for the beginning of the 2017-2018 tax year.

Big name Isa providers, including Standard Life and Fidelity, have already warned that, while they will offer Lisas eventually, they won't be ready to do so in April. Other major providers, including Nationwide Building Society, have said that they think the new scheme is overly complicated and that they're therefore steering clear. Still, some Isa providers are committed to providing Lisas from the start Hargreaves Lansdown (a favourite with MoneyWeek readers), for example, has promised to be ready.

The result of this confusion is that investors' choice may be limited at least initially. You're supposed to be able to use Lisas to invest in the full range of Isa-permissible assets, from cash to shares and other investments, either through a managed approach, or by making your own investments via platforms such as online fund supermarkets and stockbrokers. But that may not be possible straight away.

For which of the following goals are you using your Isa?

Investing for retirement and saving cash for emergencies are the main ways in which MoneyWeek readers use their Isas. Building a travel fund was always a popular choice. A sizeable number of readers added that generating an extra tax-free income to supplement their pension is an important goal.

One of the biggest changes in the Isa regime ever is about to go live.

The "Lifetime Isa" launches on 6 April this year. It is designed to be used for two big financial life events buying your first house, and retiring.

So how does it work, and is it any good?

How the Lifetime Isa works

Here's how the Lifetime Isa works. First off, you have to be under 40 to open one (and 18 or over). So if you're over the age limit (like me), tough. But frankly, I wouldn't be too disappointed it's just another complication you don't need to worry about.

OK, so for those of you who are able to open one (or who might consider funding one for offspring), how does it work?

The first point to note is that it's not much like a standard Isa. You can pay in up to £4,000 a year. That money can go into stocks and shares, or cash. The government will top that amount up by 25% (so up to £1,000), until you turn 50.

So you're getting basic-rate tax relief on your contributions. From that point of view, it's more like a pension.

Again, unlike a standard Isa, there are tight restrictions on what you can use the money for.

If you are a first-time buyer, you can withdraw the money to put a deposit on a house with a value of up to £450,000 (as long as you've held the Lifetime Isa for at least 12 months). Otherwise, you can't take the money out until you turn 60.

If you breach these rules, then you'll be charged a 25% penalty on any money withdrawn. So your bonus gets taken away, plus a bit more on top.

So, in short, the Lifetime Isa is designed to encourage you to save for either your first property or retirement. Part of the idea seems to be that you tempt people in by contributing to their property fund, and then, once they've bought their first house, they've attained the savings habit, so they stick with it.

Should you use a Lifetime Isa or a pension?If you're saving for a deposit on a house, it's hard to argue with a Lifetime Isa. The government is giving you a 25% top-up to your eventual deposit. Why wouldn't you take it?

On a society-wide level, of course, it's nuts. All you're doing is using taxpayers' money to drive up house prices and subsidise the profits of housebuilders. But that's the joys of living in a property-obsessed democracy for you.

You can use the Help-to-Buy Isa instead - we'll talk more about how the two interact in the MoneyWeek Isa supplement (subscribe now to reserve your copy) but the differences between them are a matter of admin and making sure you get your timings right, rather than any big difference in benefits.

So that's pretty straightforward.

But when it comes to the idea of using a Lifetime Isa as a pension substitute that's not so simple at all.

The main point for most people is this: if you have a workplace pension, then your employer will be contributing to it. You can't do this with a Lifetime Isa (yet). So if you ditch a pension for theLifetime Isa, then you immediately lose those extra contributions and that's not worth it.

Beyond that, the tax implications are different. With a Lifetime Isa, you get the equivalent of basic-rate tax relief when you put your money in. With a pension, you get either basic-rate relief, or you get higher-rate relief if you're a higher-rate taxpayer.

With a Lifetime Isa, when the money comes out at the other end, it's not taxed at all. With a pension, only 25% of the money at the other end is tax-free.

What this means is that if you're a basic-rate taxpayer all your life, the Lifetime Isa saves you more tax. And if you're a higher-rate taxpayer all your life, a Lifetime Isa also saves you more. But if you're a higher-rate taxpayer while you work, but a basic rate taxpayer when you retire, the pension is more tax-efficient.

Cutting through to the practicalities: for most people who earn salaries from an employer, a pension will still be a better bet simply because of the employer contribution.

But if you're self-employed or otherwise not party to an employer's pension scheme or you've already got a defined benefit pension scheme then the Lifetime Isa becomes more interesting as an option.

Again, we'll be looking at the gritty details in the Isa supplement.

The biggest risk of Lifetime Isas

The biggest risk here as with any government-backed savings product that ties your money up for the long term is politics.

Any time a government sees a big pot of savings that can't be accessed, it tries to think of ways to get its hands on it.

People with pensions already know from bitter experience that the rules governing them change for better or for worse every single year. Put bluntly, it's a pain in the neck.

The Lifetime Isa is a young product. If you plan to use it as an alternative to a pension, then even if you're 39 today, you are committing to locking your money up for just over 20 years before you can access it without penalty.

Between now and 2037, you're going to see a minimum of four general elections (one every five years from 2020), and Lord only knows how many changes of chancellor. Who knows what wild and wacky ideas they'll come up with during that time?

Of course, the same risk applies (in many ways even more so) to pensions. This has improved since George Osborne's reforms made pensions easily accessible at 55, with the option to do what you want with them. But that could be reversed or tinkered with at any point.

In all, it's another reason to think carefully before locking your money up in any long-term savings product. The major benefit of the bog-standard Isa is that it's extremely flexible. It's worth considering how you value that flexibility against the potential benefits of going with a Lifetime Isa or a pension.

We'll be looking at all of these questions and giving you some ideas of what to put into your investment vehicle of choice in the MoneyWeek Isa special, out next week. Subscribe now, if you haven't already we've also got a very special free gift lined up for the first 250 readers who sign up.