The Lifetime ISA, a key savings vehicle for UK households, could see significant changes under the new Labour Party government, which has initiated a consultation to review its structure. MPs are scrutinising the ‘punitive’ 25% tax charge on savers, suggesting an overhaul may be on the horizon, reports Birmingham Live.
Tom Selby, director of public policy at AJ Bell, commented: “Lifetime ISAs are an extremely attractive way for people to invest for the future in specific circumstances. For first time buyers in particular, a Lifetime ISA is a brilliant way to build up a deposit for a first home and benefit from a sizeable Government bonus, as well as enjoying the ability to invest tax free like a conventional ISA.”
Selby also pointed out the potential for improvement: “However, Lifetime ISAs aren’t perfect and this review from the Treasury Committee is a good opportunity to address some of the issues with their design, as well as exploring where the Lifetime ISA fits in a simplified ISA landscape.”
He continued by advocating for reform: “AJ Bell has long campaigned for an end to the punitive early withdrawal penalty, instead reverting to the system used during the pandemic when the penalty only matched the original bonus received on the account.”
Additionally, Selby suggested that “Likewise, raising the property purchase price limit, which has remained fixed since the Lifetime ISA was introduced, would be an obvious quick win. Analysis from AJ Bell shows that in numerous areas average flats and terraced houses – the sorts of properties that might well appeal to aspiring homeowners – now exceed the £450,000 cap.”
Amelia Murray, a financial expert at Be Clever With Your Cash, commented: “The early withdrawal penalty has always been unpopular and despite house prices increasing significantly since the LISA was launched, the property purchase limit hasn’t. It means aspiring home owners have a much more limited choice of what property they can actually buy with their LISA savings, which defeats the point.”
She added: “I’m really pleased the Treasury Committees has launched this enquiry giving everyone a chance to give their views on whether LISAs are still fit for purpose nine years later and whether they should be reformed.”