Autumn Budget: Rachel Reeves told to scrap ‘not fit for purpose’ Lifetime ISA
Chancellor Rachel Reeves has been warned that the Lifetime ISA (LISA) is “not fit for purpose and must be reformed” in the Autumn Budget.
Tom Goddard, a senior associate at audit, tax and business advisory firm Blick Rothenberg, has argued that the LISA “must be reformed to not conflict with shared ownership schemes”.
The LISA was launched by then-Chancellor George Osborne in his 2016 Budget with the aim to help people save for their first home or retirement.
However, Goddard states that the cost – an estimated £3bn over the next five years – is no longer worth it.
A LISA allows the user to deposit up to £4,000 of savings a year with the government then adding an additional 25 per cent.
In the maximum amount is saved, that would mean the user gets an additional £1,000 a year.
They are currently available to anyone over the age of 18, but under 40, and they can be used each year until the age of 50.
Since being launched in 2017, six per cent of eligible adults have opened a LISA, with about 1.3m accounts still active.
The comments come after the House of Commons Treasury Committee warned that ministers have not gone far enough in reforming LISAs despite being warned these products were not suitable for everyone.
MPs also questioned whether LISAs were a good use of taxpayer money in their current form.
In June, the committee also found that LISAs were being mis-sold and did not suit everyone.
‘LISA funds become nearly untouchable’
Blick Rothenberg’s Goddard said: “However, drawing down on these funds when you are not making a first-time house purchase or before you are 60, will lead to a clawback on the bonus paid by the government as well as a five per cent charge applied on the amount withdrawn. Meaning LISA funds become nearly untouchable for many people.
“To put the £3bn… cost of LISA’s into context, it is 36 per cent of the annual IHT [inheritance Ttx] take in 2024/25.
“In the Autumn Budget, the government should drop its contributions to LISAs, making them a £3bn saving and allow people to take up to 50 per cent out of their existing funds without restriction, to bring some much-needed cash into the economy.
“Even when used for their intended purpose there are issues with LISAs. There is a cap on the first-time buyer’s house purchase of £450,000.
“That may seem like a lot, but it does create an unfortunate juxtaposition with the shared ownership scheme that was also introduced to help first time buyers.
“If you are using the shared ownership scheme, you will only be able to use your LISA if the total value of the property you are buying is below the threshold.
“If you had found a property that was worth £451,000 and you were buying £200,000 of it, you would not be allowed to use the LISA for the purchase without incurring a charge.
Goddard added: “This might not be an issue in many parts of the country, but could be a real problem in London.
“It does not make sense that a person’s savings meant for a first-time house purchase and for an amount under the threshold, cannot not be used for that purpose.
“To support first time buyers, LISA’s must be reformed to not conflict with shared ownership schemes in the Autumn Budget.”