The Lifetime ISA Is Being Replaced: What You Get, What You Lose, and When

The Lifetime ISA is being replaced. That much is settled government policy: a new First Time Buyer ISA will be offered in its place, and the Treasury has published a consultation on how it should work.

What hasn't been settled is almost everything else — when it launches, how big the bonus will be, how much you'll be able to pay in each year, and what the property price cap will be.

Two things are worth saying straight away, because the headlines have blurred them.

If you already hold a LISA, nothing about your account has changed. The bonus is still being paid monthly, the rules you signed up to still apply, and none of this is being applied retrospectively.

But for other people, something real is going. The replacement is for buying a first home only — the retirement route at 60 doesn't exist in it. And when the new product arrives, the option to open a LISA is expected to go with it.

So it's worth understanding what the LISA does today, what would replace it, and which of those two groups you're in.

How the Lifetime ISA Works Today

Worth a quick refresher, because the changes only make sense against the current rules — and these rules still apply.

• Who can open one: anyone aged 18 to 39. Your first payment has to land before your 40th birthday.

• How much you can pay in: £4,000 per tax year, which sits inside your overall £20,000 ISA allowance rather than on top of it.

• The bonus: the government adds 25% of what you pay in, up to £1,000 a year. It's paid monthly, so it starts earning interest or investment returns straight away.

• How long you can contribute: until you turn 50. After that the account stays open and keeps growing, but no new payments and no more bonus.

• Using it for a home: your first property, up to £450,000, bought with a mortgage — and at least 12 months after your first payment into the account.

• Using it for retirement: from age 60, you can take everything out tax-free.

• Taking money out for anything else: a 25% withdrawal charge, applied to the whole amount you withdraw.

• Cash or investments: both versions exist.

  
  

What's Actually Been Confirmed

Three things, and only three.

• The replacement itself. At the Autumn Budget on 26 November 2025 the government committed to a new first-time-buyer-only product, and the consultation published since states plainly that it "will be offered in place of the LISA".

• The consultation and its deadline. HM Treasury published the First Time Buyer ISA consultation on 23 June 2026. It closes at 11:59pm on 18 August 2026, and it takes responses from individuals as well as institutions.

• Existing LISA holders keep their existing rules. The consultation is explicit: until the new product launches, "it will remain possible to open a LISA and LISA holders will be able to save into their LISA in line with the existing rules indefinitely."

  
  

Everything else — the bonus rate, the annual limit, the property price cap, the launch date — is still undecided. The consultation says those numbers will be announced "at a future fiscal event", which realistically means the Budget on 28 October 2026, though the Treasury hasn't committed to that.

So if an article told you the new scheme pays X% on £Y a year, that article was guessing.

What Would Actually Change

Everything in this section is a proposal in a live consultation, not settled law. With that caveat, here's the before-and-after.

• Who can open one — Today: 18 to 39 only. Proposed: anyone 18 or over, with no upper age limit. This is a genuine widening — a 45-year-old first-time buyer is currently locked out entirely.

• What it's for — Today: a first home or retirement. Proposed: first homes only. The retirement function disappears.

• When the bonus arrives — Today: monthly, as you save. Proposed: once, at exchange of contracts, with 90 days to complete the purchase.

• What the bonus is paid on — Today: 25% of contributions, capped at £1,000 a year. Proposed: a percentage of net subscriptions — what you paid in, minus anything you took out — with the rate still to be announced. Interest and investment growth wouldn't attract a bonus.

• Getting your money out early — Today: a 25% charge. Proposed: no penalty at all. This is the headline improvement.

• The property price cap — Today: £450,000. Proposed: to be announced, and aligned across the LISA, the Help to Buy ISA and the new product.

• How much you can pay in — Today: £4,000 a year. Proposed: to be announced.

• Cash or investments — Today: both. Proposed: the government says it wants both.

Two of those cut in opposite directions, and it's worth being clear about the trade.

Removing the withdrawal penalty is a real win: it's the single feature that has caused the most damage, and it makes the product safe to use for people whose plans might change.

But moving the bonus to the end costs long-term savers money. Under the LISA, a bonus paid in year one compounds for as long as you keep saving. Under the new design, the same money arrives on completion day with no time to grow. For someone saving steadily over five or ten years, that difference is not trivial — and it's why the eventual bonus rate matters so much when it's announced.

What wouldn't change for existing holders: if you already have a LISA, none of the above is applied to your account retrospectively. Your £4,000 limit, your monthly bonus, your £450,000 cap, your age-60 route and your 25% withdrawal charge all stay exactly as they are.

Why the Government Is Doing This

The consultation is unusually blunt about the problem, and the statistic it leads with is worth sitting with:

More LISA holders have lost a part of their original savings than have used it to purchase a house.

Unauthorised withdrawal charges have been rising every year, hitting 8% of all accounts opened in 2024–25. The mechanism is the bit most people never understood: withdraw for any reason other than a first home, reaching 60, or terminal illness with less than 12 months to live, and you pay 25% of the balance, not 25% of the bonus. Because 25% of a larger number claws back more than the 25% you were given, you end up below what you contributed.

Concretely: put in £4,000, receive a £1,000 bonus, then withdraw the £5,000 for anything else. The charge is £1,250. You get £3,750 — £250 less than your own money.

The second reason is the retirement leg. The Treasury's view, set out in the consultation, is that on long-term retirement saving the LISA may be diverting people away from pension products that would suit them better. The new product drops retirement entirely.

If You're Saving for a First Home

The bonus on an existing LISA is real, it's arriving monthly, and nothing announced so far puts it at risk.

Four things worth knowing:

• Holding a LISA now doesn't lock you out of the new product. You won't be able to transfer a LISA into the FTB ISA — the government won't pay two bonuses on the same money — but the consultation says both accounts can be used for the same purchase.

• The 12-month rule still bites. LISA money can't be used for a purchase until 12 months after your first payment into the account. For anyone weighing up whether to open one at all, that waiting period is part of the calculation.

• The £450,000 cap is under review. If you're in London or the South East and priced out of it, this is the number to watch at the Budget. The consultation says the cap will be aligned across the LISA, the Help to Buy ISA and the new product, "so that no account holders will lose out."

• Help to Buy ISA holders can transfer in. If you're still sitting on one of those, the proposal allows transfers into the new product up to the subscription limit.

If You've Been Using a LISA for Retirement

This is the group with a genuinely harder decision, and it's mostly the self-employed — people with no employer pension who liked the 25% top-up and the tax-free withdrawal at 60.

Your existing account is unaffected. The age-60 route, the bonus, the rules you signed up to — all still there. But the replacement product has no retirement function, so this route is closing to new savers.

The comparison is more finely balanced than it's usually presented. On money out of your pocket, basic-rate pension relief and the LISA bonus are the same 25% uplift. Where they differ is at each end: a workplace pension may come with an employer match, and higher-rate relief effectively turns £60 of take-home pay into £100 in the pot — but pension income above the tax-free element is taxed when you draw it, while LISA withdrawals from 60 are not. Which wins depends on your tax band now, your expected band in retirement, and whether an employer is contributing at all.

If the retirement leg matters to you, the consultation is open until 18 August 2026 and it accepts responses from individuals, not just institutions.

Making the Most of the Window

However long the consultation period runs, the LISA carries on working exactly as it does now. A few things are worth knowing while that's true.

• The allowance doesn't roll over. £4,000 per tax year, resetting on 6 April, and anything unused simply disappears. The maximum bonus in any year is £1,000, and there's no catching up later.

• When you pay in makes a small difference. Bonus claims run in monthly windows — the 6th of one month to the 5th of the next — and HMRC typically pays at the end of the following month. Money paid in early in the tax year therefore gets its bonus earlier, and that bonus has longer to earn interest or returns.

• The option to open a new LISA may not last. The consultation says the new product will be offered "in place of" the LISA. It's reasonable to expect that opening a new LISA becomes impossible at that point — including the age-60 retirement route, which the replacement doesn't have. No date has been set, and existing accounts aren't affected either way.

• Switching provider is a transfer, not a withdrawal. If your LISA is paying a poor rate, or it's in cash when your timeline is long (or invested when your timeline is short), ask the new provider to arrange a transfer. Taking the money out yourself would trigger the 25% charge and use up your allowance for the year.

• Watch the ceiling if you're buying near it. The £450,000 cap is on the property, not your savings. Buy for a pound more and the LISA can't be used for the purchase without the charge — which is why the cap decision at the Budget matters to anyone house-hunting in expensive areas.

• Only pay in what you won't need in the meantime. The withdrawal charge applies for the whole of this period, so money that might be needed for something else is money that shouldn't be in a LISA.

• You can have a say in the outcome. The consultation takes responses from individuals until 18 August 2026, and the parameters that matter most — the bonus rate, the limits, the price cap — are still open.

Before You Withdraw, Know the Price

If the headlines have you thinking about pulling money out early, do the sum first.

The 25% charge still applies today, and it costs you at least 6.25% of your own savings on the way out — more if your account has grown, because the charge applies to the whole balance. Paying a penalty that definitely exists, in response to a product that doesn't exist yet, is an expensive way to react to news.

One More Date for the Diary

Separately, from 6 April 2027 the cash ISA limit drops to £12,000 a year for under-65s. Savers aged 65 and over keep the full £20,000 in cash, and the overall £20,000 ISA allowance is unchanged for everyone — the difference is how much of it can sit in cash rather than investments. If you're holding a large cash balance over a long horizon, it's worth understanding well before the deadline rather than in the week before it.

The Moola Take

Most of the cost of a policy change like this isn't the policy. It's the six months of uncertainty in between, when people make irreversible decisions based on headlines about rules that don't exist yet.

The questions that actually matter here are personal, not political: does the 12-month clock affect your buying timeline? Does the £450,000 cap bite where you're looking? Is your LISA doing a job your pension should be doing instead?

Those are plan questions, and they have real answers — but only against your own numbers.

See Where You Actually Stand

Moola models your savings, pensions and goals together, so when a rule changes you can see what it does to your plan rather than guessing from the news.

This is information, not financial advice. If you're weighing up a pension against a LISA for retirement, it's worth speaking to a regulated adviser.