Lifetime ISA: Why Reform Is Overdue in the Autumn Budget

Policy Context: A Well-Intentioned Product Gone Wrong

Tom Goddard, Senior Associate commented:

George Osbourne launched LISAs in his 2016 Budget. The idea was to help people save for their first home or retirement, but the product itself is not fit for that purpose, and now costs the Government £3bn a year.

Where the Lifetime ISA Falls Short

Drawing down on these funds when you are not making a first-time house purchase or before you are 60, will lead to a clawback on the bonus paid by the Government as well as a 5% charge applied on the amount withdrawn. Meaning LISA funds become nearly untouchable for many people.

This creates a paradox: a savings product intended to promote financial security is in practice locking people’s money away. For individuals facing unexpected financial pressures – such as rising living costs – the inability to access their savings without penalty makes the LISA far less appealing than originally intended.

The Cost to Government and the Economy

To put the £3bn per year cost of LISA’s into context, it is 36% of the annual IHT tax take in 2024/25. In the Autumn Budget, the Government should drop its contributions to LISAs, making them a £3bn saving and allow people to take up to 50% out of their existing funds without restriction, to bring some much-needed cash into the economy.

Such a move could strike a balance between encouraging saving and providing liquidity at a time when many households are struggling with affordability.

A First-Time Buyer Dilemma

Even when used as intended, LISAs present obstacles. The current £450,000 property value cap for first-time buyers clashes with the realities of today’s housing market – particularly in London and the South East.

If you are using the Shared Ownership scheme, you will only be able to use your LISA if the total value of the property you are buying is below the threshold. If you had found a property that was worth £451,000 and you were buying £200,000 of it, you would not be allowed to use the LISA for the purchase without incurring a charge.

This creates a clear misalignment between government-backed initiatives intended to help the same group of buyers.

Tom Goddard points out:

It does not make sense that a person’s savings meant for a first-time house purchase and for an amount under the threshold, cannot not be used for that purpose. To support first time buyers, LISA’s must be reformed to not conflict with Shared Ownership Schemes in the Autumn Budget.

Why It Matters

For businesses, particularly in the property, financial services, and retail sectors, the LISA debate is not just about tax policy. Unlocking billions in currently inaccessible savings could stimulate spending and investment. For individuals, reforms could make the difference between achieving home ownership or retirement goals – or remaining locked out of both.

The Autumn Budget presents a critical opportunity for the Government to address these contradictions and modernise a scheme that has fallen behind economic reality.

What You Should Consider / Do Next

For individuals: If you hold a LISA, be cautious about relying on it for short- or medium-term financial needs, given current restrictions. Monitor Budget announcements closely for potential reforms.

For first-time buyers: Understand the £450,000 property cap and how it interacts with schemes like Shared Ownership before committing to a purchase.

For businesses: Consider the broader economic implications – LISA reform could release spending power into the economy, influencing consumer behaviour, especially in housing and retail.

For policymakers: The current system is both costly and restrictive. A redesign that balances fiscal responsibility with practical accessibility would better serve savers, buyers, and the wider economy.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact.