Can lifetime ISA benefits being taken away? 29 July 2018 at 7:37PM edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings 14 replies 1.3K views

aw77

Given the news about lifetime ISAs being given consideration, I wondered if anyone had any ideas about what the most likely changes would be?

Are the government able to stop giving you the bonus once you have signed up to a lifetime ISA product?

Can they change the tax-free withdrawals benefit at the other end once you reach 60, and actually tax you for withdrawing money?

Will providers be able to stop offering the product and close them, leaving you with no option but to withdraw funds and suffer the 25% withdrawal penalty?

Any insights would be appreciated! I realise it's potentially messy and that a lot of this might be unknown. Thanks.

Zorillo

I'd imagine the most likely option is they'd just merge them into ordinary ISAs and stop paying the bonus, allowing us to get the money penalty free.

eskbanker

aw77 wrote: »

I realise it's potentially messy and that a lot of this might be unknown

Correction - all of this is unknown!

To the best of my knowledge, the speculation about Lifetime ISAs is solely arising from a treasury committee report, and, as covered in the relevant MSE news article:

The Treasury Committee is appointed by the House of Commons to monitor the Treasury, but it cannot make decisions, so this report does not mean LISAs will be scrapped.

[...]

What does the Government say?

A Treasury spokesperson said: "People deserve choice and freedom in how they save, and the Lifetime Isa does just that. It is an effective way to help people get on the housing ladder or save towards their retirement.

so it's clear that there would be plenty of resistance to change.

In answer to your questions, any of the negative outcomes would probably be legally possible, but politically they'd be at best naive and at worst calamitous to a weak government not currently short of somewhat bigger fish to fry....

TheShape

Zorillo wrote: »

I'd imagine the most likely option is they'd just merge them into ordinary ISAs and stop paying the bonus, allowing us to get the money penalty free.

That's actually such a relatively straightforward solution that I could see that if the will exists to scrap the LISA not only would it be relatively straightforward but if it were coupled to an increase in tax relief on pension contributions for basic rate taxpayers (accompanied of course by a reduction for higher rate payers) and a reform of Help to Buy ISAs, it could be positively advantageous to some current LISA holders.

snowqueen555

I really don't see them allowing you to keep the bonus in a normal ISA. I think they will give the money back without the onus, or offer to transfer it into a pension scheme.

Alexland

snowqueen555 wrote: »

I really don't see them allowing you to keep the bonus in a normal ISA. I think they will give the money back without the onus, or offer to transfer it into a pension scheme.

Surely transferring into a pension would be an offer to decline as it would then be taxed on withdrawal and count towards the LTA?

Alex

aw77

Thanks for your thoughts! There doesn't seem to be a straight-forward answer that sees them taking the bonus away from us. Will be complicated if they do stop them. They can't just make you leave them in a dead account with a 0% interest rate....hopefully!

aj23_2

aw77 wrote: »

Given the news about lifetime ISAs being given consideration, I wondered if anyone had any ideas about what the most likely changes would be?

Are the government able to stop giving you the bonus once you have signed up to a lifetime ISA product?

Can they change the tax-free withdrawals benefit at the other end once you reach 60, and actually tax you for withdrawing money?

Will providers be able to stop offering the product and close them, leaving you with no option but to withdraw funds and suffer the 25% withdrawal penalty?

Any insights would be appreciated! I realise it's potentially messy and that a lot of this might be unknown. Thanks.

They can't make you pay tax on savings which is primarily tax free and comes from post-tax income. That's called being double taxed. Thankfully Jezza won't be around when people are able to access it because with him, who knows!

masonic

aj23 wrote: »

They can't make you pay tax on savings which is primarily tax free and comes from post-tax income. That's called being double taxed. Thankfully Jezza won't be around when people are able to access it because with him, who knows!

Maybe not taxed, but goalposts can always be moved. They have been repeatedly with pensions. Incidentally, that's another reason to have more than one form of retirement provision.

kidmugsy

One of the complaints about LISAs is that so few have been opened. It follows that it won't cost the taxpayer much to treat them in a "generous" way if they are to be abandoned.

aj23_2

kidmugsy wrote: »

One of the complaints about LISAs is that so few have been opened. It follows that it won't cost the taxpayer much to treat them in a "generous" way if they are to be abandoned.

I'm surprised more haven't to be honest. A lot of people will have more than £4000 in their Help to Buy ISA. Transferring it was an easy way to make an extra £1000.