What could the Autumn Statement mean for Lifetime ISAs?

Next Wednesday (22 November), the Chancellor will make his Autumn Statement, where he’ll lay out his plans for the economy. Rumours are circulating about what he’ll announce and whether he’ll make any much-needed changes to the Lifetime ISA. Here, we explain what changes we’d like to see him make to the Lifetime ISA to enable more people to benefit from what it offers.

What is a Lifetime ISA?

Lifetime ISAs were introduced by the Government in 2017 to help young people save for their first home or retirement. Open to anyone under 40, a Lifetime ISA allows you to save up to £4,000 per year and the Government pays you a 25% bonus.   

 

The pros:

• You get a 25% bonus on the money you put in, so if you put in £4,000 a year, the Government will add an extra £1,000, plus you earn interest on top too.
• You don’t pay tax on the interest you earn.
• If you have a partner, you can both open a Lifetime ISA to buy a joint home, so you can effectively double up your savings and the amount of Government bonus you receive.

The cons:

• You need to be under 40 to open one and can only use the money to buy your first home or for your retirement – if you use it for anything else, or withdraw money early, you’ll be charged a 25% penalty fee.
• Money in a Lifetime ISA can only be used to purchase homes under £450,000.  

 

What we’d like to see the Chancellor announce in the Autumn Statement:

 

Raise the house price limit

Lifetime ISAs are a brilliant way for people to save a deposit to buy their first home as their money is topped up with a Government bonus, but the £450,000 house price limit hasn’t changed since 2017. Since then, house prices across the UK have risen by around 30%, so the cap needs to be lifted to mirror this.

There are currently a lot of potential first-time buyers who live in areas where starter houses now cost more than £450,000, so they can’t benefit from the Government bonus that the product offers. There’s also a growing number of young people who already have a Lifetime ISA, but can’t find a house to buy that’s under the cap, so they either have to put off buying or receive a 25% penalty fee when they use the money to purchase a house that costs more.   

To make Lifetime ISAs fit for today and the next few years, we’d like to see the Chancellor raise this limit to £600,000, which will enable a huge number of young buyers to take their first step onto the property ladder or begin saving for their first home.

Reduce penalty fees

Currently, anyone who withdraws money early or uses it to buy a home over £450,000 is hit with a 25% penalty fee, meaning they not only lose the Government bonus, but some of their own money too.

We’d like to see the Government reduce this penalty to 20% like they did during the pandemic, so that people only lose the Government bonus if they withdraw their money early or buy a house over the price cap.

 

Change the age cap

You currently need to be under 40 to open a Lifetime ISA and you can’t pay in money after the age of 50.

As well as being a great way to save for a first home, the Lifetime ISA can also be a good way to save for retirement depending on your circumstances, particularly for self-employed people who don’t benefit from employer pension contributions.

To enable more people to benefit from the Government bonus the Lifetime ISA offers, and to encourage more people to save for later life, we’d like to see the lower aged limit lifted to 45 and the upper limit at which people have to stop paying in lifted to 60.

 

Increase the amount that people can put in each year  

Rising costs and house prices mean that people need to save more for their retirement and need bigger deposits to buy their first home. We’d like to see the Government increase the amount that people can pay into a Lifetime ISA each year to reflect this and encourage people to save more.

 

 

Putting money into a Lifetime ISA is a brilliant way benefit from a generous Government bonus, but five years after its launch, changes need to be made to the product to make it work for more people in the current economic climate.

We’ll be back next week with a full update on what the Chancellor announces in his Autumn statement and what it could mean for you. To find out more about our Lifetime ISA including the Terms and Conditions, click here.