What is the Lifetime ISA property price cap and what happens if I exceed it?

Full answer

The Lifetime ISA (LISA) property price cap has remained fixed since the product launched in 2017, and rising house prices mean it now excludes many first-time buyer purchases, particularly in and around London and the South East. **The cap itself** To use Lifetime ISA funds (including the 25% government bonus) towards buying a first home without penalty, the property must cost £450,000 or less -- this single UK-wide cap applies whether you are buying in an expensive London borough or a lower-cost area, unlike the Help to Buy ISA which had a separate, higher cap for London. **What happens if the property costs more** If the property you want to buy costs more than £450,000, you cannot make a valid first-time buyer withdrawal from your Lifetime ISA for that purchase -- withdrawing the money anyway (for a purchase that fails the price cap test) counts as an unauthorised withdrawal, triggering a 25% government withdrawal charge on the amount taken out, which effectively claws back more than just the original 25% bonus, leaving you with less than you originally paid in. **Why the 25% charge is punitive, not just a bonus clawback** Because the 25% charge applies to the total amount withdrawn (your own contributions plus the bonus), not just the bonus itself, someone who paid in £4,000 and received a £1,000 bonus (total £5,000) who then makes an unauthorised withdrawal of the full £5,000 pays a £1,250 charge (25% of £5,000), leaving them with £3,750 -- less than the £4,000 they originally contributed, a real loss, not just forfeiting the bonus. **The cap has not risen with house prices** The £450,000 cap has remained unchanged since the Lifetime ISA launched, while average UK house prices (and especially prices in London and the South East) have risen substantially over the same period -- this means a meaningfully larger share of first-time buyer purchases, particularly in higher-cost regions, now exceed the cap than when the scheme began, a frequent source of frustration and calls for the threshold to be increased. **Worked example** A first-time buyer in London has built up £16,000 in a Lifetime ISA (£12,800 contributions plus £3,200 bonus) intending to use it towards a flat. If they find a flat costing £430,000, they can use the full LISA balance towards their deposit and purchase costs without any charge, since the property is under the £450,000 cap. If they instead want to buy a flat costing £480,000, they cannot use the LISA funds towards that purchase without triggering the 25% withdrawal charge -- their options are to look for a cheaper property under the cap, save the extra deposit needed from other sources and use the LISA only up to what a cap-compliant purchase requires, or leave the LISA invested for retirement instead (LISAs can also be accessed penalty-free from age 60 for any purpose). **Using a Lifetime ISA after first missing the cap** If your first attempted purchase fails the price cap test, your Lifetime ISA is not lost -- you can keep contributing (up to £4,000 a year, with the 25% bonus continuing to apply) and use it for a later first-time purchase that does meet the cap, or eventually access it from age 60 penalty-free for any purpose, or in cases of terminal illness. **Practical tip** Check realistic property prices in your target area against the £450,000 cap well before relying on Lifetime ISA funds as part of your house deposit strategy, since finding out the cap is exceeded only at the point of a specific offer being accepted can create serious last-minute funding problems.

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More answers

• Can I still use a Help to Buy ISA to buy a house?