First-time buyers purchasing a home above £450,000 can now retain more of their Lifetime ISA savings. From 29 October 2026, the withdrawal charge for an otherwise eligible purchase above that price falls from 25% to 20%, potentially increasing the cash available towards the deposit.
The change was announced by HMRC on 28 October. It takes effect immediately for relevant withdrawals from today, giving buyers with an existing Lifetime ISA a reason to revisit their purchase figures before funds are released.
The important distinction
The withdrawal charge has been reduced for this specific category of purchase. The £450,000 threshold for a charge-free first-home withdrawal has not increased, and other unauthorised withdrawals continue to attract a 25% charge.
Why the previous charge reduced the buyer’s own savings
A Lifetime ISA adds a government bonus to eligible contributions. Under the existing account rules, savers can contribute up to £4,000 a year and receive a 25% bonus, up to £1,000 annually.
The withdrawal charge is applied to the amount taken out, including the bonus. That is why a 25% charge does more than reverse a 25% bonus: the two percentages are applied to different amounts.
Consider an account built up over several tax years with £20,000 of personal contributions and £5,000 of government bonus. Assume there has been no investment growth, interest, loss or fee deduction.
| Calculation | Previous 25% charge | New 20% charge |
|---|---|---|
| Personal contributions | £20,000 | £20,000 |
| Government bonus | £5,000 | £5,000 |
| Amount withdrawn before charge | £25,000 | £25,000 |
| Withdrawal charge | £6,250 | £5,000 |
| Available towards the purchase | £18,750 | £20,000 |
The buyer retains £1,250 more under the new rule. In this example, the remaining funds equal their original contributions. They do not retain the £5,000 bonus.
The saving is 5% of the amount withdrawn
Reducing the charge from 25% to 20% means a five-percentage-point difference on the same withdrawal. On £10,000, that is £500 more retained; on £25,000, it is £1,250.
This is not a discount on the property price and is not calculated only on the part of the price above £450,000. A £575,000 purchase does not produce a charge based on the £125,000 above the threshold. The relevant calculation uses the LISA withdrawal.
If only part of the account is needed, establish the gross withdrawal and the net amount required for the purchase. For example, obtaining £8,000 after a 20% charge requires a £10,000 withdrawal. The provider should confirm the actual figures before the instruction is processed.
What this could mean for two buyers purchasing at £575,000
Suppose two first-time buyers each hold a £25,000 LISA, with the contribution and bonus assumptions above. Both satisfy the other requirements and intend to use the full balances towards their home.
Previously, the combined £50,000 withdrawal would have left £37,500 after charges. At 20%, it leaves £40,000. The couple therefore has an additional £2,500 towards the purchase.
The improvement is useful where the deposit has taken years to assemble. It may reduce the amount needed from other savings or help close a small funding gap. It does not increase either applicant’s salary or guarantee a larger mortgage.
Each buyer’s eligibility must be checked separately. Holding an account and buying jointly do not, by themselves, establish that both withdrawals qualify.
A small cash difference can matter near an LTV threshold
Take the same hypothetical couple and assume they also have £17,500 of other deposit savings. All legal fees, taxes and other purchase costs are funded separately.
Under the previous charge, their total deposit would have been £55,000, requiring a £520,000 mortgage on the £575,000 purchase. That is approximately 90.43% loan-to-value, or LTV.
Under the new charge, the deposit becomes £57,500 and the required loan falls to £517,500, exactly 90% of the purchase price.
In Willow’s assessment, this is the type of case worth reviewing promptly. Reaching a lender’s LTV boundary may change the products available, although the lender’s valuation, criteria and affordability assessment still determine the outcome. The example assumes the valuation equals the agreed price and is not a product quotation.
The other first-home requirements still matter
The reduced charge applies to an otherwise eligible purchase. HMRC’s updated purchase guidance should be checked against the individual transaction, including first-time buyer status, intended occupation and the mortgage arrangements.
The normal framework includes a UK home intended as the buyer’s main residence, a qualifying mortgage and at least 12 months since the first payment into the LISA. The new rate does not remove those conditions or create a general route for buying an investment property.
The £450,000 threshold also relates to the property, rather than each buyer’s contribution. HMRC’s conveyancer notes confirm that the limit applies to sole and joint purchases. Two accounts do not create a £900,000 charge-free allowance.
Arrange the withdrawal through the conveyancer
HMRC’s updated withdrawal guidance requires declarations from the investor and conveyancer. The ISA manager deducts the 20% charge before releasing the remaining funds directly to the conveyancer.
Contact both parties before making a withdrawal request. Confirm the purchase price, amount needed, applicable charge and expected release date. An ordinary withdrawal into a personal bank account should not be assumed to receive the new treatment automatically.
If the purchase fails, HMRC says the funds, including the withdrawal charge taken, must be returned to the LISA. The conveyancer and provider should coordinate that process. If completion is delayed, ask them to confirm the applicable timetable and any extension needed.
Check timing where the purchase is already under way
The announced start date is 29 October 2026. For a live transaction, establish when the provider will treat the withdrawal as made and which charge it will apply.
A mortgage application date or an accepted offer on a property does not answer that question. Where funds have already been withdrawn, ask the provider about that completed transaction rather than assuming the new rate produces an automatic refund.
If the deposit changes, ensure the mortgage adviser and conveyancer use the same updated figures. Keep a clear record of the account balance, charge and net funds available.
Investment movements can change the result
The £20,000-contribution example assumes no growth or losses. It should not be read as a guarantee that every saver will recover every pound originally contributed.
If the total account value has fallen to £22,500, a 20% charge on a full withdrawal leaves £18,000. If it has risen to £27,500, the same calculation leaves £22,000. Both figures reflect the account value when funds are withdrawn.
Use a current provider statement for the purchase budget. Where investments need to be sold, confirm settlement times and the amount actually available rather than relying on an earlier valuation.
The 2029 ISA is a separate announcement
The Budget also confirms a new First Time Buyer ISA from April 2029, replacing the LISA for new savers while allowing existing LISA holders to continue contributing to and using their accounts.
The announced product includes a 25% government bonus for qualifying purchases up to £450,000. It is not available for a purchase completing now. Today’s immediate opportunity concerns the reduced withdrawal charge on existing LISAs.
Revisit the deposit and the mortgage together
For a pending purchase above £450,000, establish the net LISA funds first, then update the full purchase budget. Include other savings, any gift, purchase costs and the cash buffer the buyers intend to retain.
Mortgage affordability still depends on income and expenditure. A stronger deposit can reduce the loan required, but it does not resolve an income shortfall or override the lender’s criteria.
Willow can assess whether the revised deposit changes the suitable mortgage options. For some buyers, the benefit will be a smaller loan; for others, it may mean reaching an LTV boundary or retaining more cash for the move. The useful next step is to recalculate the actual transaction.
Buying your first home above £450,000?
If your deposit includes Lifetime ISA savings, Willow can review how the revised net amount affects your mortgage requirements and available options.
Bring your purchase price, savings figures and intended completion date. Your conveyancer and ISA manager can confirm the withdrawal treatment while we assess the borrowing.
Explore residential mortgage adviceFrequently asked questions
Is the 20% charge applied only to the amount above £450,000?
No. The property price determines whether this withdrawal category applies. The charge is calculated on the Lifetime ISA funds withdrawn, including the bonus within that amount, rather than on the portion of the property price above £450,000.
How much more would I keep from a £25,000 Lifetime ISA withdrawal?
A 25% charge leaves £18,750; a 20% charge leaves £20,000. The difference is £1,250. If the account comprises £20,000 of personal contributions and £5,000 of bonus, with no growth or fees, the new charge leaves the original contributions intact.
Does buying together double the £450,000 price limit?
No. The limit relates to the property purchase, not a separate allowance for each buyer. Two eligible buyers can each use their own Lifetime ISA, but a joint purchase above £450,000 does not become charge-free simply because they are buying together.
Can I use the new 20% charge to withdraw for any purpose?
No. It applies to the specified category of otherwise eligible first-home purchases above £450,000. Other unauthorised withdrawals remain subject to the 25% charge; existing charge-free withdrawal categories are separate.
Is the new First Time Buyer ISA available now?
No. The government has announced an April 2029 launch for the new product. The reduction taking effect on 29 October 2026 concerns withdrawals from existing Lifetime ISAs for eligible purchases above the price cap.
About the author
Wesley Ranger is a director of Willow Private Finance. His work covers residential mortgages and specialist property finance, including larger loans and applications involving complex income.