Emerging LISA future rules

didixon

I have recently read an article (The Mirror: "“Lifetime ISA win for first-time buyers – but bad news for retirement savers”), which said that: "… You currently face a withdrawal penalty if you use your Lifetime ISA savings for any reason other than buying your first home or retirement. This not only wipes out the bonus, but also part of your original savings. For example, if someone saves £4,000 into their Lifetime ISA,they would have a total pot of £5,000 once the 20% bonus of £1,000 is added totheir account. If this person decides to withdraw this cash for any reason other than theirfirst-time home, they would be stung with the 25% penalty, which would be £1,250."

My children currently have LISA each. Whilst I do not expect they will use it other than for a house the removal of the penalty, clawing back part of their interest, seems fair. However, if the information in the article is correct does this mean that the bonus for any year will not be added until you are in the process of a purchase?

So if you pay in £4000 per year for 4 years, with a pot of £16k, earning interest compounding over those years, will the rules mean they pay +25% of the pot (£16k plus interest) or more complicatedly +25% for only the capital deposits made by the end of each tax year in which a payment in was made?. Secondly, bearing in mind HMRC service levels, is this likely to delay and elongate house purchase negotiations awating the release of funds after the addition of the bonus?

Myci85

LISA bonus is added throughout the year, roughly a month after you make a deposit. We recently used ours to buy a house and other than having to notify our solicitor and both fill in a form to withdraw, it didn't make the purchase any longer or more complicated.

eskbanker

I was assuming from the thread title that it would include some new information about the consultation for the product that'll replace LISA for first time buyers, but in typical Reach clickbait style, there's absolutely nothing that hadn't already been announced last year!

masonic

Do they actually say why they think it is bad news for retirement savers (whose expectations under the current rules is they will be able to withdraw penalty free from age 60)?

intalex

https://forums.moneysavingexpert.com/discussion/comment/81862559#Comment_81862559

That the new equivalent ISA would only be usable for first time buying, not saving for retirement…

masonic

https://forums.moneysavingexpert.com/discussion/comment/81862579#Comment_81862579

Is there any suggestion the current LISA scheme will be wound up?

I guess there is a question of what happens if a young adult begins contributing to the new equivalent ISA with the intention of buying their first home, but is never able to do so. Would they have to pay the penalty, even in their twilight years when they are unlikely to be able to get a mortgage? If so, then perhaps it's bad news for certain FTB too. The current scheme at least gives a backstop for those permanently priced out whereby they can still benefit from a bonus to their savings.

intalex

https://forums.moneysavingexpert.com/discussion/comment/81862589#Comment_81862589

Can't find it but I believe I read that the new ISA will not have a penalty for non-first-time-buying withdrawal, but says nothing more as there is a lot of basics as well as complexities to consider (e.g. any growth / shrinkage proportion relating to the bonus, etc) via this supposed consultation…

EDIT: FT states

It also said the government's bonus, currently 25 per cent on the Lisa, would be provided when a person uses it to buy a house. HMRC added this would remove the need for a withdrawal charge and give savers flexibility if their circumstances change.

intalex

I'm going to predict that they will allow a transition of retirement-intentioned LISAs into a SIPP (including the bonus and growth/shrinkage) and a transition of property-intentioned LISAs into the new LISA (excluding the bonus but including all growth/shrinkage). I can't think of any flaws with this, apart from someone having to make a choice before they might feel ready to…

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81862610#Comment_81862610

But that doesn't address the question of whether or not the existing LISA product will be withdrawn?

The budget announcement was clear that a new product for first time buyers will be introduced for them to use instead of a LISA, but didn't state (or imply IMHO) that LISA would actually be withdrawn as such, and didn't say anything about its ongoing use for retirement planning.

The post-budget November tax newsletter asserted that the new product won't have withdrawal penalties, implying that the new FTB product will be closer to the old Help To Buy one than the LISA, with the bonus addition being at time of purchase rather than during the term:

The government will consult on introducing a new, first time buyer only product that will provide the bonus when a person uses it to buy a house, removing the need for a withdrawal charge and giving savers flexibility in case their circumstances change.

It will remain possible to open a Lifetime 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.

https://www.gov.uk/government/publications/tax-free-savings-newsletter-19/tax-free-savings-newsletter-19-november-2025

intalex

The post-budget November tax newsletter asserted that the new product won't have withdrawal penalties, implying that the new FTB product will be closer to the old Help To Buy one than the LISA, with the bonus addition being at time of purchase rather than during the term:

I seem to recall starting my journey with a Help-to-Buy ISA which I migrated into a Lifetime ISA, but I don't think I missed out on the bonus from the Help-to-Buy contributions… Would they have added the bonus during the migration into a Lifetime ISA then?

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81862664#Comment_81862664

IIRC the transfer from HTB into LISA was effectively regarded as a (one-off) contribution to the LISA and so had the 25% applied once there, although I think it was done at the end of the tax year rather than in the (now) usual monthly cycle.