Martin Lewis has condemned a 25 per cent penalty charge on Lifetime ISA (LISA) withdrawals as a 'manifest injustice', promising to continue his campaign against the policy irrespective of who becomes the next Prime Minister. The charge applies when savers withdraw money for purposes other than a first home purchase or after age 60, but it also penalises those buying a property above £450,000.
How the Lifetime ISA Penalty Works
Individuals can contribute up to £4,000 per tax year into a LISA and receive a 25 per cent government bonus, up to £1,000 annually. The funds are intended for a first home or retirement. However, withdrawing for any other reason triggers a 25 per cent penalty, which recovers the bonus, eliminates any interest or investment gains, and effectively removes 6.25 per cent of the original deposit.
According to Martin Lewis, this penalty disproportionately affects first-time buyers in expensive areas like London, where property prices often exceed the £450,000 cap. Savers who diligently contributed to their LISA with the intention of buying a first home are forced to pay the charge when their target property exceeds the threshold.
Lewis's Long-Standing Campaign
On his BBC podcast, Lewis addressed a listener's query about using LISA savings for a first property. He reiterated his call for the property cap to be reformed, stating: '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.'
Lewis revealed that he had previously secured commitments from former Chancellor Jeremy Hunt and current Chancellor Rachel Reeves to address the issue, but no changes were implemented. He said: 'I thought I'd got it with Jeremy Hunt first and then I thought I'd got it with Rachel Reeves, and it hasn't happened.'
Uncertain Future for Lifetime ISA
The future of the Lifetime ISA remains uncertain. At the Autumn Budget, Labour proposed introducing a new savings product for first-time buyers to replace the LISA. With a new Prime Minister expected to take office and potentially a new Chancellor, further reforms could be on the horizon.
Lewis's comments were recorded 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's resignation announcement. Regardless of political changes, Lewis vowed to persist in his lobbying efforts against the penalty charge.
