Lifetime ISA hands £1bn boost to Treasury coffers amid debate over purpose
The Lifetime ISA has provided the Treasury with a significant fiscal boost each year since 2021, despite the government continuing to question whether it is ultimately fit for purpose.
According to research from CBI Economics, commissioned by Moneybox, the Lifetime ISA (LISA) has delivered a net boost of £1bn to date for the government since the 2021/22 financial year, due to revenues generated from the account surpassing the cost of government bonuses.
While the account is tax free, the LISA also allows funds to flow back to the government through additional house buying fees, such as stamp duty land tax and land registry costs, which ultimately provide more capital than the account’s withdrawal fee.
For every £1 spent the government has recouped £1.45 in fiscal revenue, according to the CBI.
Cecilia Mourain, chief homebuying and savings officer at Moneybox, said: “This analysis unequivocally demonstrates the value and impact of this product.
“With a few considered measures to future proof it for the next generation, LISAs can go even further in unlocking financial opportunity and resilience for generations to come.”
Social impact
Despite the LISA adding additional funds to the economy, the Treasury select committee is continuing to assess whether the scheme is fit for purpose.
LISAs allow Brits aged 18 to 39 to save for either their first home or retirement, granting a 25 per cent government bonus on contributions up to £4,000 a year.
Moneybox data revealed that savers earning £30,000 to £40,000 a year accounted for the largest share of LISA deposits and contributed £600m to the economy in the 2024 financial year.
However, the Treasury Committee has raised concerns over the product’s dual role, believing it can confuse consumers and turn them away from using more appropriate products, including pensions.
But data from Moneybox rebuffed these claims, with 81 per cent of users saying the product improved their saving behaviour, while 84 per cent confirmed feeling more financially secure.
MPs have also debated the sustainability of the withdrawal fee, which is added onto the amount Brits take out if it is for unauthorised use, with some feeling it was appropriate to include a penalty.
Yet, the withdrawal penalty fee contributes just 8.3 per cent to Treasury revenues, according to the CBI research.
Growing reach
The product has also reached more consumers over the past two years, with £1.3bn withdrawn for house purchase in the 2023/24 year.
Elsewhere, the number of individuals who used the account for a home hit 87,250, up from 56,100 the year before.
The product is also forecast to generate a total £4bn fiscal economic contribution by 2040.
Speculation is growing about the ISA regime, with the Chancellor expected to announce a complete overhaul of the system, including potentially slashing the tax-free ceiling from £20,000 to £10,000 in a bid to boost investing in domestic stocks.
The Treasury is also reportedly considering cutting stamp duty on UK shares to 0.5 per cent.