- Government set to launch a consultation on the future of the Lifetime ISA in early 2026 (Source: HMT | Budget 2025 | GOV.UK)
- It says this will be on ‘the implementation of a new, simpler ISA product to support first time buyers to buy a home’ to ultimately replace the Lifetime ISA
- Self-employed pension savers could be left in the lurch by plans to drop the Lifetime ISA
- Consumers and existing Lifetime ISA customers need to come first when government consults on plans
- Brief mention of Lifetime ISA reform in Budget documents creates further uncertainty
Dan Coatsworth, head of markets at AJ Bell, comments:
“It looks like the government is ready to hammer a nail into the Lifetime ISA’s coffin. It will publish a consultation early next year on replacing the Lifetime ISA with a simpler product aimed at first-time buyers. This raises more questions than answers and adds yet more confusion to the ISA landscape.
“The ISA system in general is too complicated, and the Lifetime ISA is one of the worst offenders, featuring withdrawal penalties for certain circumstances and a cap on property purchase limits that hasn’t kept pace with the broader property market. Lifetime ISA providers have repeatedly asked policymakers to look at fixing these problems to help savers and investors.
“A lot of people diligently saved into the account and found they were penalised to the tune of 6.25% of their money if they used it to buy a property worth more than £450,000. That sounds like a lot, but an increasing number of terraced homes and flats are valued at a higher level in many parts of the UK. What’s more, those who find themselves needing to access their Lifetime ISA early get clobbered by the early exit penalty.
“Replacing the Lifetime ISA could essentially mean bringing back the Help to Buy ISA under a new guise. The government is keen to help more people get on the housing ladder and any financial incentives to support those hoping to achieve this dream will be welcome.
“It begs the question as to what will happen to existing Lifetime ISA customers. Those using the account for retirement savings will want to know if they’re stuck in a legacy account, or if they are able to transfer to a different account. Through this consultation process, the government needs to make sure consumers come first and that the number one priority is for existing Lifetime ISA customers to get a good outcome.
“It also presents a challenge for self-employed people who use it as a retirement savings vehicle. The self-employed miss out on auto-enrolment and so the government should be doing more to encourage those in this group to put away as much money as they can for later life.
“As it stands, the brief mention in the Budget documents about potential changes to the Lifetime ISA creates further uncertainty. The government wants to encourage more people to invest, and constantly changing the ISA system is unhelpful.”
