Chancellor Jeremy Hunt has potentially ruled out cutting the penalty for accessing your Lifetime ISA for any reason other than for a first home or after the age of 60, according to reports in The Telegraph.
This decision, if confirmed, maintains the status quo where a 25% charge applies to funds withdrawn for purposes other than buying a first home worth under £450,000 or retirement after 60, which has been met with criticism for its rigidity in the face of changing financial circumstances.
Despite the calls for reform, it appears that the maximum property price limit eligible under the LISA scheme will also remain unchanged.
This is particularly concerning given the considerable rise in housing prices that have potentially outpaced the scheme’s current caps, especially in areas like London where average property values have soared beyond the threshold.
On a more positive note, the Chancellor is expected to introduce the flexibility of opening multiple ISAs of the same type within a single tax year. This adjustment could simplify the saving process, allowing individuals to spread their annual allowance across different providers or switch ISAs without the fear of penalization.
Sarah Coles from Hargreaves Lansdown has expressed disappointment at the missed opportunity for more substantive LISA reforms, stating: “It’s incredibly disappointing if Hunt has decided not to revisit the ISA penalty. It seems enormously unfair that you’re punished for a change in your circumstances.”
Coles highlights that the current LISA framework can be punitive for those whose situations change unexpectedly, forcing them to access their savings early and incur substantial financial penalties. The unchanged stance on property price limits may also continue to disadvantage prospective homeowners in high-value markets.
Nevertheless, the possibility of wider ISA reforms through consultation offers a glimmer of hope. Coles suggests that comprehensive changes could significantly benefit the self-employed, who often seek more flexible retirement saving solutions than traditional pensions provide.
Coles argues for increasing the age limit for LISA contributions and reducing the withdrawal penalty as measures that could aid a large demographic currently underprepared for retirement.
The Autumn Statement is due on November 22nd.
