UK households face new Lifetime ISA rules with a investigation into “punitive” 25 per cent tax charges on savers. Savers who want to make an early withdrawals from their Lifetime ISA account have to pay a 25 per cent tax charge from HMRC and the Labour Party government.
The Treasury Committee is seeking views from the finance industry, consumers and experts on whether the Lifetime ISA is fit for purpose. Former Conservative Party Chancellor George Osborne introduced the LISA in the 2016 Budget.
He aimed to provide an alternative method of tax-free saving for retirement while simultaneously encouraging people under 40 to save for a property by offering incentives which could help people get on to the property ladder.
BREAD MORE Blue Badge holders face £1,000 fine under plan to ‘tackle’ trend
The product enables people under 40 to open a LISA, and to contribute up to £4,000 each year until they’re 50. At the end of each tax year, this is topped up by a 25% bonus from HMRC. Individuals are only able to withdraw their money from the account if they are either buying their first home, terminally ill with less than 12 months to live or aged 60 and over.
Withdrawal for any other reason comes with a 25% charge. As part of this work, MPs are looking for answers as to “whether the Lifetime ISA fit for purpose in its current design, including as a combined product for house purchase and pension saving?”
Other questions in the consultation include: “How well do consumers transition between using the Lifetime ISA as a product for house purchase, to then a product for pension saving?”, “Given its policy purposes, is the Lifetime ISA value for money for the Government?” and “Is the Lifetime ISA a suitable pension savings product?”
“Should the Lifetime ISA be abolished?” the consultation also asks, alongside: “Should the Lifetime ISA be reformed to remove the withdrawal penalty?”, “Should the Lifetime ISA be restricted to those with no access to a workplace pension?”, “Should the Lifetime ISA house price cap be raised in line with inflation, or removed?”, and “Should the annual Lifetime ISA limit be raised from £4,000?”