Martin Lewis to keep fighting ‘manifest unfairness’ whoever is new Prime Minister | Personal Finance | Finance
Martin Lewis has called out a “manifest injustice” as savers have to pay a hefty penalty charge. He pledged to keep fighting the policy whoever is elected the new Prime Minister, be it Andy Burnham or someone else.
He made the comments about the 25 per cent penalty on his BBC podcast, urging for the HMRC policy to be reformed. A listener phoned in with a question as they were thinking of buying their first home using funds from their cash Lifetime ISA.
25 per cent charge
You can deposit up to £4,000 each tax year into a Lifetime ISA (LISA) and you get a 25 per cent bonus from the Government on any deposits, which means you can get get up to £1,000 in bonus cash. The funds are meant to be used towards either your first home or you can access them once you turn 60, otherwise you have to pay a 25 per cent penalty when making a withdrawal.
The idea of this 25 per cent charge is to recoup the Government bonus, but it also wipes out any interest earnings or investment growth, and also effectively takes away 6.25 per cent of your original deposit.
In a growing number of cases, you may have to pay the penalty even if you use the cash for your first home. This is because you can only use your LISA savings towards a first property up to the value of £450,000.
ISA changes could be on the way
People looking to buy in expensive areas such as London are being hit by this charge, despite saving into their LISA in good faith the intention of using the cash for its intended purpose, to buy your first property. The future of the Lifetime ISA is very much up in the air at the moment.
At the Autumn Budget, Labour said it would bring in a new first-time buyer savings product to replace the Lifetime ISA. Now with a new Prime Minister coming in and potentially a new Chancellor to replace Rachel Reeves, more changes could be on the way.
‘Shouldn’t be there’
But whatever happens, Mr Lewis said he will continue to call for the property cap charge to be binned. He said: “I will continue to be lobbying on this issue because I think it’s a manifest unfairness, for first-time buyers who are buying a first-time property with a first-time property ISA, that they have to pay a penalty for doing so. I don’t think that penalty should be there.”
This podcast episode was recorded and Mr Lewis made the comments on the day of the Makerfield by-election, before Mr Burnham was elected as the new MP for the area and prior to the PM announcing his resignation.
Mr Lewis told listeners about his previous efforts to get the policy changed: “I’ve been campaigning to get it so that at least if you’re buying your first time property and it’s above £450,000, while you might not get the 25 per cent bonus, you shouldn’t have the penalty for using it.
