First-time buyers are hopeful the Chancellor will finally make sweeping reforms to the ‘unfair’ Lifetime ISA withdrawal penalty during his Budget speech in March.
In an interview with consumer champion Martin Lewis, the Chancellor was asked when the Government would either change the Lifetime ISA (LISA) property threshold or get rid of the withdrawal penalty “so people get back what they put in”.
The LISA was launched in 2017, allowing those aged 18-39 to open an account and squirrel away £4,000 a year until their 50th birthday, with savings used for a first home or for retirement.
The big boon is the Government’s 25% (up to £1,000) bonus each tax year. Funds can be accessed for those buying a property up to the value of £450,000, or from the age of 60.
But any other withdrawals are subject to a hefty 25% penalty (and it applies for withdrawals made within 12 months of opening). It means people needing access to their cash, such as to cover soaring bills amid the ongoing cost-of-living crisis or because their property is valued above £450,000 are getting back less than they put in to the scheme.
This has been a major sticking point and criticism of the LISA, as since its introduction, the property value threshold hasn’t increased in line with house price increases. See YourMoney.com’s Lifetime ISA guide for more information on the hybrid scheme.
Lewis stressed that “people are trapped by their LISAs as £450,000 doesn’t get you very far, in London anyway”, adding that the withdrawal penalty is “an unfairness in the system”.
Lifetime ISA reform?
In response, Hunt said: “I’m now starting to make my plans for the Budget on 6 March and I absolutely hear what you’re saying on that – consider the Chancellor properly lobbied on that point.
“I do think we should be doing what we can to help people who want to buy their first house. I accept the purpose of the LISA is actually to encourage people to save for their first house so if that’s what they’re using it for, that’s a good thing.
“We obviously want to make sure that when the state is topping up people’s savings – which is a very special deal that you get with the LISA – that it’s being used for the purpose it was intended by taxpayers when we make that subsidy.”
In recent months, many campaign groups and financial services firms, including Lewis, have called for the Government to scrap the hefty LISA withdrawal penalty and/or increase the housing property limit. There were hopes this would be included in the Autumn Statement last year but it came and went without a murmur.
Following the broadcast of the interview which was aired on The Martin Lewis Money Show Live on Tuesday 9 January (approximately 22 minutes into the show), Lewis asked his audience whether they thought the Chancellor was likely to make changes to the LISA during his Budget scheduled for 6 March 2024.
Just over half were in agreement, with Lewis, founder of MoneySavingExpert.com saying he thinks there’s a 70% chance of action to help trapped first-time buyers, adding that he doesn’t know any more than what was aired in his interview with the Chancellor.
