Martin Lewis has pledged to keep fighting what he calls a 'manifest unfairness' in the Lifetime ISA (LISA) rules, vowing to continue his campaign regardless of who becomes the next Prime Minister. The money-saving expert made the comments on his BBC podcast, urging reform of the 25 per cent penalty charged on withdrawals that do not meet the scheme's conditions.
The 25 Per Cent Penalty Explained
Savers can deposit up to £4,000 each tax year into a Lifetime ISA and receive a 25 per cent government bonus, worth up to £1,000 annually. The funds are intended to be used either for a first home purchase or accessed after age 60. Withdrawals for any other purpose incur a 25 per cent penalty, which is designed to recoup the government bonus. However, the charge also wipes out any interest or investment growth and effectively removes 6.25 per cent of the original deposit.
In a growing number of cases, first-time buyers face the penalty even when using the cash for a home purchase, because the property must cost £450,000 or less. Those buying in expensive areas like London are particularly affected, despite saving in good faith.
Political Changes and Future of the LISA
The future of the Lifetime ISA remains uncertain. At the Autumn Budget, Labour announced plans to introduce a new first-time buyer savings product to replace the LISA. With a new Prime Minister and potentially a new Chancellor replacing Rachel Reeves, further changes could be on the horizon. Lewis noted that he had previously thought he had secured reform with both Jeremy Hunt and Rachel Reeves, but it 'hasn't happened.'
Lewis made his comments on the day of the Makerfield by-election, before Andy Burnham was elected as the new MP for the area and prior to the Prime Minister announcing his resignation. He told listeners: 'I will continue to be lobbying on this issue because I think it's a manifest unfairness, for first-time buyers who are buying a first-time property with a first-time property ISA, that they have to pay a penalty for doing so. I don't think that penalty should be there.'
Campaign for Reform
Lewis has long campaigned for the property cap charge to be removed. He explained: 'I've been campaigning to get it so that at least if you're buying your first time property and it's above £450,000, while you might not get the 25 per cent bonus, you shouldn't have the penalty for using it.' He urged the new government to address the issue, describing the current rules as a 'manifest injustice.'
