BUDGET 2025: Lifetime ISA to be replaced with new product

The government has confirmed it is intending to abolish the Lifetime ISA (LISA) and replace it with a different kind of product – but the new version is not yet confirmed.

It is intending to run a consultation looking at potential replacements next year, with plans to introduce this in favour of the LISA in future.

In its Budget 2025 documents published today, the Treasury said: “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.”

It said in the meantime, the LISA annual allowance will remain at £4,000.

Our view

The LISA has been under intense scrutiny over the past year. Earlier this year, MPs said it was too costly for taxpayers and too complex in its current form, and argued that it mostly benefits wealthier people who don’t really need the top up (those who can afford to save the maximum into it get the most free cash from the government).

Whatever you think about ‘wealthier’ savers getting maximum benefit from the LISA, the issue of its bizarre charging structure is evident.

It has a notoriously complex system that is not understood by many savers, leading to them losing money. At the moment, you get a 25% bonus on your savings you put in – woohoo! – but if you take any money out, you’re charged 25% on the whole lot, including the bonus, which means you pay more back than you put in.

💡 Example: If you pay in £4,000, you get a £1,000 top up. If you then withdraw the cash, you’ll be charged a 25% fine on the whole £5,000 – that’s £1,250. Ouch!

So, some elements of the LISA definitely do need reforming.

But, the LISA is a well-used product. Almost a million accounts were held at the end of 2024 (around 964,000), with over £2.3 billion in them.

At a time when young people are struggling to get on the housing ladder more than ever, savers need incentives and extra help to get them there, and so we think removing the product altogether would be a mistake. But if there is a way to introduce something less complex and costly that does the same job, that would be a positive step.