The Lifetime ISA is unfit for purpose and must be reformed in the Autumn Budget – London Business News | London Wallet

The Government’s Lifetime ISA (LISA) is not fit for purpose and must be reformed in the Autumn Budget, say leading audit, tax and business advisory firm, Blick Rothenberg.

Tom Goddard, a Senior Associate at the firm, said, “George Osbourne launched LISAs in his 2016 Budget. The idea was to help people save for their first home or retirement, but the product itself is not fit for that purpose and now costs the Government £3bn a year.

“The LISA allows the user to put in a maximum of £4,000 of savings a year, with the Government then adding a further 25% for every £1 contributed, thus giving a maximum saving of £5,000 a year. LISA’s are available to anyone over the age of 18 (but under 40), and they can continue to contribute to the LISA each year until age 50.

“However, drawing down on these funds when you are not making a first-time house purchase or before you are 60, will lead to a clawback on the bonus paid by the Government as well as a 5% charge applied on the amount withdrawn. Meaning LISA funds become nearly untouchable for many people.

“To put the £3bn per year cost of LISA’s into context, it is 36% of the annual IHT tax take in 2024/25. In the Autumn Budget, the Government should drop its contributions to LISAs, making them a £3bn saving and allow people to take up to 50% out of their existing funds without restriction, to bring some much-needed cash into the economy.

“Even when used for their intended purpose there are issues with LISA’s. There is a cap on the first-time buyer’s house purchase of £450,000. That may seem like a lot, but it does create an unfortunate juxtaposition with the Shared Ownership scheme that was also introduced to help first time buyers.”

He added, “If you are using the Shared Ownership scheme, you will only be able to use your LISA if the total value of the property you are buying is below the threshold. If you had found a property that was worth £451,000 and you were buying £200,000 of it, you would not be allowed to use the LISA for the purchase without incurring a charge.

“This might not be an issue in many parts of the country, but could be a real problem in London. It does not make sense that a person’s savings meant for a first-time house purchase and for an amount under the threshold, cannot not be used for that purpose. To support first time buyers, LISA’s must be reformed to not conflict with Shared Ownership Schemes in the Autumn Budget.”