HMRC issues major new ISA update | Personal Finance | Finance
The government could bring in new rules for Lifetime ISAs (Image: Getty)
New changes to Lifetime ISAs (LISAs) will reportedly prevent them from being used to save for retirement, as the Government acknowledged they’re “not working for everyone”. It comes after the Treasury announced plans for a new product to replace the savings account, exclusively for first-time buyers, in the Autumn Budget.
The Government currently adds 25p for every pound put into a LISA, a 25% tax-free bonus that allows savers to add a maximum of £1,000 annually if they save £4,000 in a tax year. But under new plans set to be assessed in a consultation this year, the bonus will no longer be paid monthly – as is currently the case. Instead, it’s understood that the bonus could be paid when the funds are withdrawn to buy a home.
READ MORE: Santander to close 44 UK branches in 2026 – full list of locations
READ MORE: Martin Lewis issues ’26-day rule’ guidance to halve car insurance
Currently, Britons are hit with a 25% withdrawal charge for taking money out of a Lifetime ISA unless they’re:
- buying a first home
- aged 60 or over
- terminally ill, with less than 12 months to live.
It’s believed that the move away from monthly bonuses will remove the need for these financial penalties, meaning people can take their cash out without paying a fee when they buy a home, as per the outlet.
The changes mean Brits will also no longer be able to open an account to save for their retirement.
The new product is expected to be launched in April 2028, with savers able to continue under existing rules until the switchover, though the plans have not yet become law and will be subject to consultation.
In a new update published by HMRC, it said: “It will remain possible to open a Lifetime Individual Savings Account (ISA) until the new product becomes available, and for account holders to continue to save into their Lifetime ISA, in line with the existing rules, indefinitely.”
Rachel Vahey, head of public policy at investment platform AJ Bell, said the LISA has helped “thousands of young people get a step on the property ladder” since it launched in 2017.
However, she noted that the savings account is “not without its flaws, so it’s no surprise the Government is going to replace it with a different model”.
Flagging some of the issues associated with it, Ms Vahey said: “Paying an upfront bonus means having to claw it back if it’s not used in the intended way, and it’s this withdrawal charge that has caused a lot of the problems.
“It’s far easier to get rid of an upfront incentive and go back to giving a bonus only when a house is bought. The return to the help-to-buy model – the predecessor of the Lifetime ISA – should also be cheaper for the Government.”
However, the expert warns that it may have negative impacts for those looking to buy property, as “potential homeowners lose out on the investment growth earned on the bonus during the years they save for their first house”.
“That might mean having less money to buy the home of their dreams,” she added.
Ahead of the consultation, she said ministers need to design the transition to the new product “with the best interests of those who currently are investing in a Lifetime ISA in mind”.
“It should be made easy for these people to continue to buy a house with their Lifetime ISA if they want, or to transfer their investment to the new ISA product without incurring an additional 6.25% charge on their savings,” she added.
“But by only focusing on helping those buying a house, the government is leaving fewer options for those who might use a Lifetime ISA to save for retirement.
“Self-employed individuals and others without access to a workplace pension can keep saving if they already have a Lifetime ISA. But that doesn’t help the thousands of people who need a solution in the future.
“Instead, we are relying on the Pension Commission, who publish its interim report later this year, to come up with a cunning plan to help these groups save for retirement.”
An HM Treasury spokesperson told Money: “We recognise that the Lifetime ISA is not working for everyone, particularly when people’s circumstances change.
“That is why we intend to consult on a new and improved product, specifically designed to support first-time buyers and without penalty for withdrawals.”
