Martin Lewis, founder of MoneySavingExpert.com, has predicted that the upcoming Budget may bring changes to the Lifetime ISA. The Lifetime ISA allows savers to deposit up to £4,000 per tax year, with the government adding a 25% bonus, up to a maximum of £1,000 annually.
However, the account has restrictive rules: funds can only be used for a first home purchase or retirement. Withdrawing for any other reason incurs a 25% penalty, which not only removes the bonus but also part of the original savings. For example, saving £4,000 results in a £5,000 pot after the bonus. Using it for a home over £450,000 triggers a £1,250 penalty, leaving just £3,750.
The property price cap of £450,000 is particularly problematic for buyers in London, where prices often exceed this limit. Lewis has been advocating for reforms, including raising the threshold and adjusting the penalty so savers do not lose their original contributions.
In a post on X last week, Lewis stated: 'I think we may finally see some changes to the Lifetime ISA in [this week's] Budget.' He suggested two possible outcomes: removing the penalty for buying a more expensive property (so savers get their money back without the bonus) or increasing the threshold to around £500,000, which would account for inflation since the ISA's launch in 2017. He added that both changes are unlikely.
The Treasury has not confirmed any changes. The Budget is scheduled for November 26, where any announcements regarding the Lifetime ISA will be made.
