HMRC update as savers hit with ‘punitive’ withdrawal charge | Personal Finance | Finance
HMRC has issued an update about a major change to ISAs. Chancellor Rachel Reeves announced several changes to ISAs in her Autumn Budget.
This included a reduction in the ISA allowance, coming in from April 2027. You can currently deposit up to £20,000 a year into ISAs and divide this allowance between cash accounts, and stocks and shares accounts.
But under the new rules, you will only be able to deposit up to £12,000 into any type of ISA, while the remaining £8,000 will only be available for investment-based accounts. The new rules will not apply to those aged 65 and over.
The Government also said after the Budget that it would consult on a new product to replace the Lifetime ISA. This product allows you to deposit up to £4,000 a year and you get a 25 percent Government bonus on top of any deposits, meaning you can get an extra £1,000 a year.
However, the funds can only be used towards your first home or you can access them once you turn 60. Any other withdrawals are subject to a 25 percent withdrawal charge. A Government document about replacing the Lifetime ISA stated: “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.” HMRC bosses recently appeared before the Treasury Committee to take questions about their work, including the upcoming changes to ISAs.
When asked about the product, Cerys McDonald, director of Individuals Policy, said: “We know that the current model of having a hybrid product where people can either use it either for later life purposes or for first time buyers does cause quite a lot of confusion and can mean people inadvertently end up with the withdrawal charge, and that can be seen as punitive.
“The position that ministers came to, supported by advice from us, was that a new product that was much more focused on the first-time buyer market would be preferable. Ministers have been clear that the existing LISA product will continue for current holders.”
Some other restrictions on the Lifetime ISA include that you can only open one between the ages of 18 and 39. You can only make deposits up to the age of 50.
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