Lifetime ISA savings to be excluded from Universal Credit eligibility
Boris Johnson today said that in a bid to remove barriers to home ownership, “we’re going to explore discounting Lifetime and Help to Buy ISA savings from Universal Credit eligibility rules”.
Universal Credit is a means-tested benefit. Single applicants or those in a couple with savings or capital over £16,000 are not eligible for Universal Credit.
But those with savings can still apply. Anything under £6,000 is disregarded, while amounts between £6,000 and £16,000 see UC claims reduced by £4.35 a month for each £250 of capital over £6,000.
During the pandemic, many people applied for Universal Credit for the first time to help them with a low or no income, but many weren’t eligible or saw the amount reduced because they saved money in a Help to Buy ISA or Lifetime ISA (LISA).
As such, given the challenging times, the government cut the penalty for accessing LISA cash. Savers can only withdraw money from the LISA penalty-free if they are using it towards a first home purchase or retirement. Withdrawing money for any other reason, means they must pay a 25% penalty.
This penalty was temporarily cut to 20% in March 2020 to help people suffering financially due to the pandemic but was restored to 25% in April 2021.
Dan Wilson Craw, deputy director of Generation Rent, said: “During the pandemic many people who lost income were ineligible for Universal Credit because they had more than £16,000 in savings, including Lifetime ISAs which are specifically for saving a deposit for a mortgage.
“As a result they had to actually dip into those savings to pay the rent, setting back aspirations for home ownership. This announcement means that more people will be able to access Universal Credit if they lose their job, and keep their hopes of home ownership alive.”
Help to Buy ISA and Lifetime ISA
The Help to Buy ISA (closed to new applicants in 2019) allowed applicants to save up to £1,200 in the first month and then up to £200 a month after that. A 25% bonus was then added, so for every £200 saved, the government contributed £50, with a maximum saving of £12,000 and maximum bonus of £3,000.
The Lifetime ISA was introduced in April 2017 for people aged 18-39. It allows a maximum of £4,000 to be deposited each year, until the age of 50. This can be in a cash account or stocks and shares Lifetime ISA and means savers can put away a total of £128,000 which is matched by a maximum government bonus of £32,000 (maximum £1,000 each year).
The Lifetime ISA can be used to buy a first home up to the value of £450,000 across the UK or to save for later life.
YourMoney.com has contacted the government to ask how the LISA and Help to Buy ISA savings will be discounted from UC applications, such as whether both the saver’s contribution and the government bonus will be excluded. We’ll update this article once we hear back.