4 September 2025
If you are covering HMRC’s ‘Understanding the Lifetime ISA’ research, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“New HMRC research released today highlights how confused the purpose of the Lifetime ISA (LISA) has become. Nearly half of account holders opened one to save for their first home, while almost as many used it for retirement. By attempting to serve two distinct goals, the product risks failing to meet either effectively – echoing concerns raised by the Treasury Committee and many in the industry.
“While the 25% government bonus is undeniably popular, with 98% of holders saying it was important in their decision to open an account, the product still carries serious flaws. The withdrawal penalty continues to punish savers even when they are facing financial strain. Many people have faced the difficult battle over the need to save for the future versus the need to pay their bills in recent years, and higher costs have often won. This has forced them to stomach the 25% charge to gain access to their money – not only wiping out the government bonus, but some of their own hard-earned savings too. HMRC’s own data shows 86% of those making unauthorised withdrawals knew they would lose both the bonus and some of their own savings, but did so anyway, which underlines how desperate people were for access. The data also shows that 42% of those not currently holding a LISA said a change to the rules so that original savings would not be lost with the withdrawal charge would be most likely to motivate them to open one.
“What’s more, the house price cap of £450,000, which has been unchanged since the product first launched in 2017, is increasingly detached from reality in many parts of the country - particularly those living in London and the South East. Of those who had opened a LISA to save to buy their first home, just half (52%) agreed that the cap was high enough, while a third (34%) disagreed. This rose to 68% disagreeing for those living in London, and 48% in the South East.
"Put simply, the £450,000 property price cap no longer deals with the reality of the ever more expensive housing market. Many who have saved diligently find they cannot use their LISA for the property they need without facing a financial penalty. This undermines confidence in the product and adds to its complexity. There have been numerous anecdotes of home buyers being constantly outbid by small sums over the threshold as the other interested party knows that by doing so the other buyer loses their ability to use their LISA effectively tying their hands.
“The profile of LISA holders also raises questions. Nearly half sit in the higher or additional rate tax bands, and most live in London and the South East. This is far from a universally accessible savings vehicle and risks benefitting those already more financially secure.
“For first-time buyers, the LISA has provided genuine help. Nearly a third of those who used it to buy a property said the government bonus was essential in making the purchase. But the majority admitted they likely would have bought anyway, just with more difficulty, reinforcing the concern that the LISA often diverts existing savings rather than generating new ones.
“Taken together, these findings underline why the LISA should be central to the Treasury’s upcoming ISA consultation. Small tweaks won’t be enough. A fundamental rethink is needed to create simpler, clearer products that genuinely meet people’s savings goals, rather than leaving them penalised or confused.”
