Budget 2026: Major changes for savers
First-Time Buyer ISA will replace Lifetime ISA in 2029, penalties relaxed, a new ‘Starter ISA’ proposed and savings income tax rises by 4%.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, comments on the new First-Time Buyer ISA and previous ISAs created by the Government to support new buyers, as well as a rise to savings income tax of 4%.
“The new First-Time Buyer ISA (FTB ISA) echoes the workings of the older Help to Buy ISA, yet at a higher contribution limit of £4,000 per year, matching the Lifetime ISA. Unlike the Lifetime ISA, the Help to Buy ISA was created exclusively for new buyers, as will be the case with the FTB ISA. The Help to Buy ISA helped support 612,426 property purchases within a nine-year span, alongside the payment of a 25% bonus from the Government, up to £3,000.
“An exclusive ISA solely for the purpose of going towards a first home must do just that, support new buyers and allow them access to their money when in need, not have layers of complications. Locking savers outside of accessing their hard-earned cash would leave them more exposed to the rising cost of living, so it’s good the new First-Time Buyer ISA avoids a withdrawal penalty as the Government bonus of 25% will be based on the account’s final balance. However, the Government has confirmed the new FTB ISA will have a property price cap of £450,000 nationally, matching the Lifetime ISA.
“Any saver still using the Help to Buy ISA can continue putting money into this until the end of November 2029 and must claim their bonus by December 2030. The Government has also confirmed today that Help to Buy ISA holders will be permitted to transfer their full account balance into the First-Time Buyer ISA outside of the annual limit, from 6 April 2029 until 1 December 2030, when the Help to Buy ISA is due to close. However, Lifetime ISAs will not be permitted to transfer, yet someone can hold both a FTB ISA and Lifetime ISA at the same time, both for cash or stocks & shares.”
Lifetime ISA penalty relaxed for homebuyers breaching purchase cap
“Savers stuck with their Lifetime ISA will be relieved by the news they can get their original deposits back if they buy a house over the £450,000 cap, due to the penalty charge dropping from 25% to 20%. This reform was unfinished business and has been delayed for far too long. Only during the COVID-19 pandemic were savers allowed to take back their money, so it’s good to see this change finally become reality. Unfortunately, this does not help the thousands of savers who have already made early withdrawals. This could be for many reasons, such as to help fund the cost of living, but because the LISA has not moved with the times, the house purchase cap has not changed, and it’s no longer fit for purpose for every saver. Lifetime ISAs helped to support around 228,000 house purchases over a six-year period, but over the same timeline, there were more savers who made unauthorised withdrawals than those who purchased, between the 2018/19 to 2023/24 tax-years, according to HMRC. Granted, savers who do not use their cash LISA for buying a home can still leave it until after turning 60, but it could work much harder by having it invested over the longer-term.”
|
Scheme
|
Duration
|
Gov Bonus
|
Property purchases supported
|
Pros
|
Cons
|
|
Help to Buy ISA
|
1 December 2015 - 30 June 2024
|
25% up to £3,000
|
612,426
|
No withdrawal penalty; broad uptake
|
Closed to new accounts
|
|
Lifetime ISA
|
6 Apr 2017 - ongoing
|
25% up to £1,000 p.a.
|
228,000 (2018/19 to 2023/24 tax years)
|
Higher contribution limit
|
£450k cap; withdrawal penalty
|
|
Source: HMRC
|
Chancellor proposes a Starter ISA ‘to get savers investing’
"The Chancellor, John Healey, will need to divulge more details on why a Starter ISA will succeed where the ‘British ISA’ failed to become a reality. The previous proposal was ultimately dropped before launch, so we will need to know how the new idea can work without creating more complexities surrounding savings and tax-free allowances in the UK.
"The ‘British ISA’ was conceived as a way to channel more savers' money into UK businesses, rewarding those who invested in UK-focused shares and funds with an extra £5,000 of tax-free ISA allowance on top of the standard £20,000 allowance. However, the proposal never progressed beyond the consultation stage and was later abandoned."
Stealth tax leaves savers facing a bigger tax bill, as savings income tax will rise by 4%
“The stealth tax of freezing income tax thresholds until 2031 means many consumers are being dragged into higher-rate tax bands, and with no signs of review, it means thresholds will have been in place for almost a decade. As if that wasn't enough, savers are also facing a 4% rise in savings income tax from April 2027, which is higher than the 2% previously announced.
“Tax on savings income outside of an ISA wrapper is increasing by 4% across all bands from April 2027. The basic rate will rise from 20% to 24%, the higher rate from 40% to 44%, and the additional rate from 45% to 49% from April 2027. It’s estimated by HMRC that 3.8 million people, with savings income above the relevant tax-free allowances, equivalent to 9% of taxpayers, will pay more tax on their savings income by 2029-30. This highlights the growing tax burden for savers, so seeking advice to utilise any allowances to shelter savings from tax is vital.
“Savers are going to be dismayed by fiscal drag, as any basic-rate taxpayer who moves up to the higher-rate tax bracket will see their Personal Savings Allowance (PSA) halved, from £1,000 of savings interest tax-free each year to just £500. It’s also worth noting that it has been 10 years since the PSA was introduced, and it has not moved with the times. Due to higher interest rates, even savers with a house deposit can now breach their allowance if it is not sitting within an ISA wrapper.”
We are on hand for any data requests in support of the above. Reach out for up to the minute product news on personal finance products, or for daily average rates on savings and mortgages. Our experts are available to help with any additional commentary or broadcast opportunities.
Budget 2026: Major changes for savers
First-Time Buyer ISA will replace Lifetime ISA in 2029, penalties relaxed, a new ‘Starter ISA’ proposed and savings income tax rises by 4%.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, comments on the new First-Time Buyer ISA and previous ISAs created by the Government to support new buyers, as well as a rise to savings income tax of 4%.
“The new First-Time Buyer ISA (FTB ISA) echoes the workings of the older Help to Buy ISA, yet at a higher contribution limit of £4,000 per year, matching the Lifetime ISA. Unlike the Lifetime ISA, the Help to Buy ISA was created exclusively for new buyers, as will be the case with the FTB ISA. The Help to Buy ISA helped support 612,426 property purchases within a nine-year span, alongside the payment of a 25% bonus from the Government, up to £3,000.
“An exclusive ISA solely for the purpose of going towards a first home must do just that, support new buyers and allow them access to their money when in need, not have layers of complications. Locking savers outside of accessing their hard-earned cash would leave them more exposed to the rising cost of living, so it’s good the new First-Time Buyer ISA avoids a withdrawal penalty as the Government bonus of 25% will be based on the account’s final balance. However, the Government has confirmed the new FTB ISA will have a property price cap of £450,000 nationally, matching the Lifetime ISA.
“Any saver still using the Help to Buy ISA can continue putting money into this until the end of November 2029 and must claim their bonus by December 2030. The Government has also confirmed today that Help to Buy ISA holders will be permitted to transfer their full account balance into the First-Time Buyer ISA outside of the annual limit, from 6 April 2029 until 1 December 2030, when the Help to Buy ISA is due to close. However, Lifetime ISAs will not be permitted to transfer, yet someone can hold both a FTB ISA and Lifetime ISA at the same time, both for cash or stocks & shares.”
Lifetime ISA penalty relaxed for homebuyers breaching purchase cap
“Savers stuck with their Lifetime ISA will be relieved by the news they can get their original deposits back if they buy a house over the £450,000 cap, due to the penalty charge dropping from 25% to 20%. This reform was unfinished business and has been delayed for far too long. Only during the COVID-19 pandemic were savers allowed to take back their money, so it’s good to see this change finally become reality. Unfortunately, this does not help the thousands of savers who have already made early withdrawals. This could be for many reasons, such as to help fund the cost of living, but because the LISA has not moved with the times, the house purchase cap has not changed, and it’s no longer fit for purpose for every saver. Lifetime ISAs helped to support around 228,000 house purchases over a six-year period, but over the same timeline, there were more savers who made unauthorised withdrawals than those who purchased, between the 2018/19 to 2023/24 tax-years, according to HMRC. Granted, savers who do not use their cash LISA for buying a home can still leave it until after turning 60, but it could work much harder by having it invested over the longer-term.”
|
Scheme
|
Duration
|
Gov Bonus
|
Property purchases supported
|
Pros
|
Cons
|
|
Help to Buy ISA
|
1 December 2015 - 30 June 2024
|
25% up to £3,000
|
612,426
|
No withdrawal penalty; broad uptake
|
Closed to new accounts
|
|
Lifetime ISA
|
6 Apr 2017 - ongoing
|
25% up to £1,000 p.a.
|
228,000 (2018/19 to 2023/24 tax years)
|
Higher contribution limit
|
£450k cap; withdrawal penalty
|
|
Source: HMRC
|
Chancellor proposes a Starter ISA ‘to get savers investing’
"The Chancellor, John Healey, will need to divulge more details on why a Starter ISA will succeed where the ‘British ISA’ failed to become a reality. The previous proposal was ultimately dropped before launch, so we will need to know how the new idea can work without creating more complexities surrounding savings and tax-free allowances in the UK.
"The ‘British ISA’ was conceived as a way to channel more savers' money into UK businesses, rewarding those who invested in UK-focused shares and funds with an extra £5,000 of tax-free ISA allowance on top of the standard £20,000 allowance. However, the proposal never progressed beyond the consultation stage and was later abandoned."
Stealth tax leaves savers facing a bigger tax bill, as savings income tax will rise by 4%
“The stealth tax of freezing income tax thresholds until 2031 means many consumers are being dragged into higher-rate tax bands, and with no signs of review, it means thresholds will have been in place for almost a decade. As if that wasn't enough, savers are also facing a 4% rise in savings income tax from April 2027, which is higher than the 2% previously announced.
“Tax on savings income outside of an ISA wrapper is increasing by 4% across all bands from April 2027. The basic rate will rise from 20% to 24%, the higher rate from 40% to 44%, and the additional rate from 45% to 49% from April 2027. It’s estimated by HMRC that 3.8 million people, with savings income above the relevant tax-free allowances, equivalent to 9% of taxpayers, will pay more tax on their savings income by 2029-30. This highlights the growing tax burden for savers, so seeking advice to utilise any allowances to shelter savings from tax is vital.
“Savers are going to be dismayed by fiscal drag, as any basic-rate taxpayer who moves up to the higher-rate tax bracket will see their Personal Savings Allowance (PSA) halved, from £1,000 of savings interest tax-free each year to just £500. It’s also worth noting that it has been 10 years since the PSA was introduced, and it has not moved with the times. Due to higher interest rates, even savers with a house deposit can now breach their allowance if it is not sitting within an ISA wrapper.”
We are on hand for any data requests in support of the above. Reach out for up to the minute product news on personal finance products, or for daily average rates on savings and mortgages. Our experts are available to help with any additional commentary or broadcast opportunities.
