HMRC ISA Tax Changes Could Open New First-Time Buyer ISA to Over-40s

People aged over 40 could gain access to a government-backed first-time buyer savings scheme under Treasury plans to replace the Lifetime ISA with a new First-Time Buyer ISA. The proposed account would be open to all adults aged 18 and over, removing one of the main restrictions of the current system.

The proposed savings account would continue offering a 25 per cent government bonus towards the purchase of a first home. However, unlike the Lifetime ISA, savers would no longer face a 25 per cent withdrawal charge if they access their money for reasons other than buying a property.

The consultation comes alongside new HM Revenue & Customs proposals that would introduce tax charges on some cash held within Stocks and Shares ISAs from April 2027 as part of ISA reforms announced in the 2025 Autumn Budget.

First-Time Buyer ISA Opens To Over-40s

The Treasury said the new account is intended to replace the Lifetime ISA and better reflect changing homeownership patterns across the UK. Officials said people are buying their first homes later in life, leaving some prospective buyers unable to access the current scheme. Under current rules, new Lifetime ISA accounts can only be opened by people aged 18 to 39.

The government bonus would continue at 25 per cent of the amount saved. Unlike the current system, however, the bonus would be paid when a property purchase is completed rather than being added to the account during the savings period.

Withdrawal Penalty Removed

One of the biggest changes would be the removal of the Lifetime ISA withdrawal charge. Under current rules, savers who withdraw money for reasons other than buying a first home or retirement face a 25 per cent charge. Consumer groups and financial advisers have long criticised the penalty because it can leave savers with less than they originally contributed.

The Treasury said funds withdrawn from the proposed First-Time Buyer ISA for non-housing purposes would no longer face the same charge. The Treasury also indicated that the current £450,000 property purchase limit would remain in place.

New HMRC ISA Rules From 2027

Separately, HMRC published draft legislation linked to ISA reforms due to take effect from April 2027. Under the plans, the annual Cash ISA allowance for people under 65 would fall from £20,000 to £12,000, while the overall ISA limit would remain £20,000. Savers aged 65 and over would continue to be able to save up to £20,000 a year in a Cash ISA.

The legislation would also introduce a 22 per cent charge on interest earned from cash held inside non-cash ISAs, including Stocks and Shares ISAs. HMRC said the changes are intended to encourage greater participation in retail investing.

HMRC said the measures are designed to prevent investors from using investment ISAs primarily as tax-free cash savings accounts and to encourage greater participation in retail investing.

The proposals would also prevent investors from transferring money from non-cash ISAs into Cash ISAs, while transfers in the opposite direction would still be permitted. Both sets of proposals remain subject to consultation before the government finalises the rules ahead of their planned introduction in April 2027.