Lifetime ISA Changes: What You Need to Know

The Lifetime ISA (LISA) has been one of the most generous savings products available to under-40s since it launched in April 2017. For every £4 you save, the government adds £1 — up to £1,000 of free money each tax year. But after nearly a decade, the government has signalled that it intends to replace the LISA with a redesigned product.

The direction of travel is clear: the replacement is expected to focus exclusively on helping first-time buyers, removing the retirement savings function that currently makes the LISA attractive to a much wider group of savers.

This guide explains what changes are being proposed, what they mean for existing LISA holders, and — crucially — what you should consider doing now.

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Why Is the Government Changing the Lifetime ISA?

In June 2025, a Treasury Committee report identified what it described as structural problems with the LISA’s dual-purpose design. The committee found that the same product being used for both first home purchase and retirement saving creates meaningful risks:

• Savers saving for a first home may select investment strategies poorly suited to their timeline — such as higher-risk stock market funds when they plan to buy within two to three years.
• The product may divert some savers away from workplace pensions, which often provide greater long-term value — particularly through employer matching contributions.
• The 25% withdrawal penalty can leave savers who need to access their money in an emergency worse off than if they had never saved at all, effectively losing part of their own contributions.

The committee also acknowledged that the LISA serves a genuine purpose as a supplementary retirement savings vehicle — particularly for the self-employed, who cannot benefit from automatic enrolment or employer contributions.

The conclusion was not to scrap the LISA entirely, but to redesign it. The government is expected to consult on a replacement, with a new ISA intended to be available from around January 2028 — though no confirmed date has been announced.

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What Is the Government Proposing to Change?

While the government has not yet published full consultation details, a number of anticipated changes have been widely discussed by financial services providers and industry bodies. These remain proposals — not confirmed policy.

1. Retirement Saving Function to Be Removed

The most significant anticipated change is that the new ISA will be designed solely to help people buy their first home. The ability to use a LISA for retirement from age 60 — which has made the product particularly attractive to self-employed workers — is expected to be removed from the replacement product.

2. The Withdrawal Penalty May Be Reduced or Removed

One of the most widely criticised aspects of the current LISA is the 25% withdrawal charge on any withdrawal outside of a first home purchase or retirement. In practice, this charge does not simply claw back the government bonus — it can leave savers worse off than if they had never used a LISA at all.

Under the proposed new product, the bonus may be paid only when a home is purchased, rather than credited monthly to the account. If this model is adopted, there would be no need for a withdrawal penalty — because the bonus would never have been paid into the account in the first place.

This would represent a significant improvement in flexibility. However, there is a trade-off: if the bonus is held back until completion, it cannot earn interest or be invested in the meantime, reducing the compounding benefit over time.

3. The Property Price Cap May Be Raised or Regionalised

The current LISA property price cap of £450,000 was set in 2017. House prices across the UK — particularly in London and the South East — have risen substantially since then, leaving a growing proportion of first-time buyers unable to use their LISA for the home they are actually trying to buy.

Under the proposed new product, the property price limit may be increased. There is also speculation that different caps could apply in different regions to better reflect local market conditions. No figures have been confirmed.

4. Age Restrictions May Be Reviewed

The current LISA requires savers to open the account before their 40th birthday, and stops accepting contributions the day before they turn 50. Industry bodies have called for the age restriction on contributions to be relaxed, though no specific changes have been confirmed.

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Current LISA vs. Proposed Replacement: At a Glance

The table below compares the current Lifetime ISA with what is anticipated under the replacement product. All figures for the new product are indicative based on publicly available discussions — not confirmed policy.

Source: Current rules based on HMRC regulations for 2026/27 tax year. Proposed changes based on publicly available government and industry commentary as at June 2026. Subject to change.

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What the Changes Mean for the Self-Employed

The self-employed represent one of the groups that benefits most from the LISA’s retirement saving function. Unlike employed workers, they do not benefit from automatic enrolment and have no access to employer pension contributions. The LISA has provided a flexible, bonus-boosted route to supplement a SIPP or personal pension.

The proposed removal of the retirement savings function could leave a gap for this group. Industry bodies have suggested that self-employed workers should be brought within the scope of automatic enrolment, citing the compounding benefits of tax relief and stronger governance that a pension provides.

Others have proposed that the government should offer a one-off basic rate tax bonus to compensate LISA holders for the loss of the government top-up if funds are transferred into a pension. Neither proposal has been confirmed.

If you are self-employed and currently rely on your LISA as part of your retirement savings, this is an area worth monitoring closely and discussing with an FCA-regulated financial adviser.

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What Happens to Existing Lifetime ISA Holders?

The government has confirmed that existing Lifetime ISAs will not be affected by the launch of the new product. If you already hold a LISA, you can:

• Continue paying in and receiving the 25% government bonus under current rules.
• Continue investing or saving within your existing account.
• Use your LISA for a first home purchase, following the existing eligibility rules.
• Access your funds tax-free from age 60 for retirement, as permitted under current rules.

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Should You Open a Lifetime ISA Now?

This is one of the most common questions being asked. The answer depends on your individual circumstances, but there are compelling reasons to consider opening a LISA before the current product is replaced — particularly if you are a first-time buyer aged 18 to 39.

Reasons to Consider Opening a LISA Now

• You can lock in the existing 25% monthly bonus, credited to your account and available to be invested from day one.
• Starting the 12-month clock: you must hold a LISA for at least 12 months before using it towards a first home purchase. Opening now — even with a nominal contribution — preserves your options.
• The current product may be more generous in some respects than the replacement, particularly if the bonus is deferred to completion under the new rules.
• If you are also saving for retirement and are self-employed, the current LISA rules allow you to retain the retirement function even after the new product launches, if you already hold an account.

Reasons to Wait or Seek Advice First

• The 25% withdrawal charge remains a significant risk if your circumstances change. Only open a LISA if you are genuinely committed to either buying a first home or holding the funds to age 60.
• If you earn above the higher-rate tax threshold, a pension is likely to be more tax-efficient for retirement saving.
• If you are not a first-time buyer, you cannot use a LISA for a property purchase — though you can still open one for retirement saving under current rules.

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Lifetime ISA vs. Pension: Is the LISA Still Worth It for Retirement?

With the retirement savings function expected to be removed from the replacement product, the question of whether to use a LISA alongside a pension becomes more time-sensitive for existing holders.

The table below illustrates the difference in outcome for a basic-rate taxpayer in England, Wales, or Northern Ireland.

Source: Illustrative example, basic-rate taxpayer, England/Wales/NI. Excludes inflation, charges, and investment performance. Scottish taxpayers may face different outcomes. Not financial advice.

For higher-rate taxpayers, the position reverses: pension contributions attract 40% tax relief, making a pension the more efficient option in most cases. Always maximise employer pension contributions first — employer matching is effectively free money.

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Five Things to Do Now in Response to the LISA Changes

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Common Questions About the LISA Changes

Will the government bonus be reduced?

As far as publicly available information indicates, the 25% bonus rate is expected to be retained in the new product. However, the timing of when it is paid may change — from monthly crediting to payment at completion.

Can I transfer my existing LISA to the new product?

No details of a transfer mechanism have been announced. Existing LISA holders are expected to keep their current accounts under existing rules.

What if I want to use my LISA for retirement but the new product removes that option?

If you already hold a LISA, the retirement savings function is expected to be preserved for your existing account. If you have not yet opened one and are primarily motivated by retirement saving, the window to do so under current rules may be limited.

Is the new product available yet?

No. The replacement product is expected to be available from approximately January 2028. No confirmed launch date has been announced. The current LISA remains the only product of this type available to open.

What happens if I have both a Help to Buy ISA and a LISA?

The Help to Buy ISA closed to new applicants in November 2019. You can only use the bonus from one product — either your Help to Buy ISA or your LISA — towards a first home purchase. You should compare which bonus is larger before deciding which to apply.

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Ready to Compare Lifetime ISA Providers?

If you are considering opening a Lifetime ISA before the current rules change, comparing providers is an important step. Interest rates, platform charges, investment options, and bonus processing speeds vary significantly between providers and can have a meaningful impact on your savings over time.