The Lifetime ISA Is Being Scrapped — What Self-Employed Savers Must Do Before 2028

The Lifetime ISA launched in 2017 with a dual purpose: help under-40s buy a first home or save for retirement after age 60. The new First-Time Buyer ISA keeps the first purpose and kills the second.

Here's what the transition looks like:

• 2026–2027: Existing LISAs continue as normal. You can still contribute up to £4,000 per year and receive the 25% bonus.
• 2027 Migration Window: Transfer your LISA balance to the new FTB ISA penalty-free. This is your one clean exit.
• April 2028: LISAs close permanently. The FTB ISA launches with a crucial difference — the bonus is only paid at the point of property purchase, not on each annual contribution.

The 25% withdrawal penalty on non-qualifying withdrawals remains brutal. Take money out of a LISA for anything other than a first home or after age 60, and you lose 25% of the total withdrawal. That's not 25% of your gains — it's 25% of everything, which means you actually lose 6.25% of your own contributions.

For self-employed savers using the LISA as a retirement vehicle, the penalty-free migration window in 2027 is the critical date. Miss it, and you face that 25% charge to access your own money.

Employed workers get auto-enrolled into workplace pensions. Their employer contributes at least 3% of qualifying earnings. The self-employed get none of this.

According to MoneyHelper, only around 20% of self-employed workers actively contribute to a pension. Many turned to the LISA as a simpler, more flexible alternative — no need to choose a pension provider, no complex paperwork, and the 25% bonus matched the basic rate of pension tax relief.

The numbers made sense. A self-employed graphic designer contributing £4,000 per year to a LISA from age 25 would accumulate roughly £40,000 in government bonuses alone by age 60. That entire retirement pathway is being removed.

Assumes 5% annual growth, £4,000 contributions. SIPP figures include 20% tax relief reinvested. LISA includes 25% bonus. SIPP pulls ahead because tax relief is invested from day one.

The SIPP actually outperforms over longer time horizons because the tax relief gets invested immediately and compounds. For higher-rate taxpayers claiming the additional 20% relief through self-assessment, the gap widens further.

A Self-Invested Personal Pension is now the clearest replacement for LISA retirement saving. Here's why it works for the self-employed, and how to set one up.

Tax relief is generous. Contribute £4,000 to a SIPP and the government adds £1,000 in basic-rate tax relief automatically — exactly matching the LISA bonus. But if you're a higher-rate taxpayer, you claim an extra £1,000 through your self-assessment return. That's £2,000 in tax relief on a £4,000 contribution. The LISA never offered that.

The annual allowance is £60,000 or 100% of your earnings, whichever is lower. Most self-employed workers won't hit that ceiling.

Setting up a SIPP takes 15 minutes:

1. Choose a provider — look for low platform fees (0.15%–0.45%) and no dealing charges on funds
2. Verify your identity online
3. Set up a direct debit for monthly contributions
4. Pick your investments — a global index tracker is a sensible default
5. File your self-assessment to claim higher-rate relief if applicable

The trade-off: You cannot access SIPP funds until age 57 (rising from 55 in 2028). The LISA allowed access at 60. For most retirement savers, this is actually an advantage — you get your money three years earlier.

One critical difference: SIPP withdrawals are taxed as income. The first 25% is tax-free, but the rest is added to your income for that tax year. LISA withdrawals after 60 were entirely tax-free. For a self-employed worker with modest retirement income, this may not matter much — the personal allowance and basic-rate band will shelter a decent chunk.

With the ISA deadline on 5 April 2026 just weeks away, self-employed savers face an immediate decision within the broader LISA transition.

You can still contribute up to £4,000 to your LISA this tax year and collect the 25% bonus. That's £1,000 of free money. Even if you plan to migrate to the FTB ISA or withdraw in the 2027 window, the bonus is yours to keep during migration.

But think carefully about your overall ISA allowance split. The £4,000 LISA contribution counts within your £20,000 total ISA allowance. If you're also contributing to a Stocks and Shares ISA or Cash ISA, the maths needs to work.

[[CHART:pie|Suggested ISA Allowance Split for Self-Employed Savers 2025/26|LISA (max bonus): £4000, SIPP (via salary sacrifice or direct): Outside ISA, Stocks & Shares ISA: £12000, Cash ISA (emergency fund): £4000]]

For self-employed workers who want to maximise this year's LISA bonus and start a SIPP, the good news is that SIPP contributions sit entirely outside the ISA wrapper. They don't compete for the £20,000 allowance. You can contribute £4,000 to your LISA, £16,000 to other ISAs, and put money into a SIPP on top — all in the same tax year.

If you're considering transferring existing ISA balances, do it through the provider's official transfer process. Never withdraw and redeposit — you'll use up fresh allowance.

The LISA's retirement function was always a sticking plaster. It papered over a genuine gap: the self-employed have no auto-enrolment, no employer contributions, and historically poor pension engagement. Losing the LISA forces a more serious conversation about retirement planning.

Here's a practical three-pillar framework:

Pillar 1: SIPP (core retirement savings) Aim for 10–15% of your net profit. At the current Bank of England base rate of 3.75%, cash returns are reasonable but won't beat inflation long-term. Invest in diversified funds within your SIPP for real growth.

Pillar 2: ISA (flexible medium-term savings) Use your remaining ISA allowance for a Stocks and Shares ISA. Unlike a pension, you can access this money at any age with no tax on withdrawals. It's your bridge between emergency savings and retirement.

Pillar 3: Emergency cash buffer Self-employed income is lumpy. Keep 3–6 months of expenses in an easy-access Cash ISA or savings account before locking money away in a SIPP.

Monthly contribution example for a self-employed worker earning £40,000:

This is 22.5% of gross income — ambitious but achievable for a disciplined saver. Adjust the ratios to your circumstances. The SIPP should take priority because of the tax relief, but the ISA provides flexibility the pension cannot.

The transition stretches over two years. Here's your action plan:

Now to 5 April 2026:

• Max out your £4,000 LISA contribution for the 2025/26 tax year
• Open a SIPP if you don't have one — start with even £50/month
• Review your ISA allowance split across all wrappers

April 2026 to March 2027:

• Continue LISA contributions in the 2026/27 tax year (the bonus still applies)
• Build your SIPP contributions to your target level
• Watch for the FTB ISA consultation outcome — the final rules will affect migration terms

2027 Migration Window:

• If buying a first home: transfer LISA to the new FTB ISA penalty-free
• If saving for retirement: withdraw during the penalty-free window (details TBC in consultation)
• Move withdrawn funds into your SIPP to maintain the retirement savings trajectory

April 2028 onwards:

• LISAs cease to exist
• Your SIPP and ISA portfolio carries the full weight of retirement planning
• Consider increasing SIPP contributions annually in line with earnings growth

The worst outcome is doing nothing. Self-employed workers who sleepwalk past the 2027 migration window will face the 25% withdrawal penalty to access their own savings. That's money you earned, taxed at a rate that would make even HMRC blush.