MSE News: Martin urges Government to change unjust Lifetime ISA rules penalising first-time buyers

MSE_Petar

First-time buyers paid the Government an estimated £1.8 million in fines for taking money out of their Lifetime ISAs (LISAs), new figures for the 2023/24 tax year show. MoneySavingExpert.com founder Martin Lewis is renewing calls to the Government to stop those who are using LISA savings for their intended purpose – buying a first-time property – having to pay these unjust penalties.

Read the full story:
' Martin Lewis urges Government to change unjust Lifetime ISA rules that cost first-time buyers £1.8 million last year'

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Qyburn

Is it actually a "fine" or are they just not benefiting from the government handout by buying a property that doesn't comply?

masonic

Qyburn said:

Is it actually a "fine" or are they just not benefiting from the government handout by buying a property that doesn't comply?

The penalty means they get back less than they paid in. Reducing the penalty to 20% would result in a non-punitive clawback of the bonus paid.

mathmog

This penalty is so silly I cannot help wondering if it arose because of some innumerate civil servant with a classics degree thinking that if you added 25% and then took away 25% you’d get back what you put in. I would not put it past them to be standing firm to avoid revealing such a foul-up. But another dimension to this is how it applies to part buy part rent properties. If you bought a 35% share of a property for 160,000 you’d still suffer the penalty because that is 35% of 457k which is over the limit. FINE!!!!

Kim_13

mathmog said:

This penalty is so silly I cannot help wondering if it arose because of some innumerate civil servant with a classics degree thinking that if you added 25% and then took away 25% you’d get back what you put in. I would not put it past them to be standing firm to avoid revealing such a foul-up. But another dimension to this is how it applies to part buy part rent properties. If you bought a 35% share of a property for 160,000 you’d still suffer the penalty because that is 35% of 457k which is over the limit. FINE!!!!

If it was, they know by now that it is a 6.25% penalty, since they reduced the penalty to 20% during COVID, so that people could get back what they put in in order to meet essential expenses at that time when they may have had very little or nothing coming in. They could have made that a permanent change or changed it to 20% if a first property purchase would have been under £450,000 indexed to 2017, but chose not to do so.

H2B ISA limits not changing are more forgivable since a) you can just take back what you put in and b) they were always a time limited product. Lifetime ISAs have no end date so the cap gets more and more out of date.

Also, if people can afford to proceed with their now over the limit purchase without the LISA funds thereby avoiding the penalty, they have to leave it there until they are 60. Given this, I think LISA savings should be treated in a similar manner to pension pots and disregarded for the purposes of any means tested benefit claims they may need to make in the future.