7 May 2025
If you are covering the recent correspondence on the Lifetime ISA from HMRC to the Treasury Committee, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“Recent correspondence from HMRC to the Treasury Committee reveals that while the popularity of the Lifetime ISA (LISA) has grown substantially since its launch in 2017, it is still helping only a limited number of people. Since its launch, the number of LISA accounts has grown from 64,000 in the 2017-18 tax year to over 1.3 million in 2023-24. However, so far only 228,000 individuals have used a LISA towards the purchase of their first home.
“In London, 18,350 people used a LISA to purchase their first home which is at the lower end of the scale when compared to other regions. This is indicative of the limitations of the LISA, as the £450,000 house price cap will mean many first time buyers living in the most expensive parts of the country will be unable to make use of its support. Based on the latest population statistics from the Office for National Statistics, the percentage of Londoners between the age of 18-40 who have utilised the LISA for their first house purchase is just 0.56%.
“The South East saw the highest number of individuals, 38,650, utilising the LISA for their first house purchase. The North West saw the second highest level of use, with 27,900 individuals using a LISA, while the North East saw the lowest level of use with just 7,650 individuals.
“While it is certainly a positive that some people are being supported by the LISA to take their first step onto the property ladder, this latest correspondence does not highlight the impact of unauthorised withdrawals and the lack of understanding around the savings product. HMRC’s recently published ‘Understanding the Use of the Lifetime ISA’ report, referenced within the letter, lays bare the confusion that remains. In particular, the revelation that even financially literate savers, including those actively contributing to their LISA, did not realise that the 25% penalty on non-qualifying withdrawals can leave them with less than they originally invested. People simply do not realise it’s not just a clawback of the government bonus – it’s a loss on their own money.
"Once they understood this, there was broad consensus that the current rules feel unfair and that the withdrawal charge should be reduced to 20%. This would at the very least allow savers to break even if circumstances forced them to dip into their pot.
"While reducing the withdrawal charge could prevent people from being deterred from taking early withdrawals, it would avoid the current situation wherein savers who find themselves in need of their money are having their own contributions unfairly reduced alongside the reclaiming of the government bonus."
