According to Budget 2025 documents, the move is designed to untangle the complexities of the current savings landscape. However, investment platform AJ Bell warns that the proposal creates fresh uncertainty for existing savers and could disadvantage the self-employed.

Dan Coatsworth, head of markets at AJ Bell, describes the move as the government getting ready to “hammer a nail into the Lifetime ISA’s coffin”.

While the industry has long argued that the LISA requires reform – specifically regarding the punitive withdrawal penalties and the £450,000 property price cap that has failed to keep pace with inflation – scrapping the product entirely raises more questions than answers.

“The ISA system is too complicated, and the Lifetime ISA is one of the worst offenders,” Mr Coatsworth noted. “However, replacing it could essentially mean bringing back the Help to Buy ISA under a new guise.”

The consultation raises urgent concerns for two specific demographics.

There is currently no clarity on whether current LISA holders will be able to transfer to the new product or if they will be trapped in “legacy” accounts. AJ Bell urges the government to prioritise a fair outcome for those who have diligently saved under the current rules.

Many self-employed individuals utilise the LISA as a retirement savings vehicle because they do not benefit from workplace pension auto-enrolment. Mr Coatsworth warned that dropping the LISA without a specific retirement alternative leaves this group “in the lurch”.

While financial incentives to help people onto the housing ladder are welcome, the constant modification of the ISA system risks confusing savers. As Mr Coatsworth concluded: “The government wants to encourage more people to invest, and constantly changing the ISA system is unhelpful.”