The government will consult on Lifetime ISA reform and the implementation of a replacement ISA product for first-time buyers.
According to the Budget documents, "the government will publish a consultation in early 2026 on the implementation of a new, simpler ISA product to support first-time buyers to buy a home. Once available, this new product will be offered in place of the Lifetime ISA."
Rachael Griffin, tax and financial planning expert at Quilter said: “At long last, the government has conceded that the Lifetime ISA is a confused product in desperate need of simplification. In early 2026, the government will publish a consultation on the implementation of a new ISA product which will replace the existing Lifetime ISA and focus solely on supporting first-time buyers.
“As it currently stands, the Lifetime ISA has attempted to serve two distinct goals – saving for retirement and saving for a first home - but has failed to meet either effectively. While the 25% government bonus has been undeniably popular, the product itself has carried serious flaws and the withdrawal penalty has punished savers at a time when they have faced significant financial strain.
“What’s more, the house price cap of £450,000 has been unchanged since the product first launched in 2017 and has become increasingly detached from reality in many parts of the country. This has resulted in many people who have saved diligently, particularly those living in London and the South East, being unable to use their LISA for the property they need without facing a penalty. This has undermined confidence in the product and added complexity and must be addressed within the new product.
“As part of its consultation, the government should also look to reform the punitive 25% withdrawal penalty which often punishes savers for accessing their own money by taking back not only the government bonus, but some of their own savings too.
“For many first-time buyers, the LISA has provided genuine help, and a simplified offering should continue to meet the same need. However, there will be questions marks over how and if existing LISA holders will be affected, and the government will need to ensure they are not disadvantaged.”
Carol Knight, CEO of TISA, commented: “This is a moment for sensible reform of the Lifetime ISA, not a rush to scrap it. LISAs have helped a generation of first-time buyers save for a deposit and, crucially, given many – particularly the self-employed – a simple, engaging way to build retirement savings.
"As the government consults on a new ISA for homebuyers, it must protect the strengths of the LISA and give clarity and fair treatment to existing savers – not dismantle a product that is already delivering for those trying to save for both a first home and later life.”
