Government issues major update over ‘increasing’ Lifetime ISA cap beyond £4,000

The BBC and ITV star has led the criticism of the Lifetime ISA scheme, and has urged the Labour Party government to make changes.

The government has broken its silence over whether it would hike the Lifetime ISA cap – after calls from Martin Lewis. The BBC and ITV star has led the criticism of the Lifetime ISA scheme, and has urged the Labour Party government to make changes.

In the Commons this week, Pippa Heylings, Liberal Democrats MP for South Cambridgeshire, reached out “to ask the Chancellor of the Exchequer, if she will increase the cap on Lifetime ISAs.”

Emma Reynolds, Labour Party MP for Wycombe, said: “Data from the latest UK House Price Index shows that while the average price paid by first-time buyers has increased, it is still below the LISA property price cap in all regions of the UK except for London, where the average price paid is affected by boroughs with very high property values.

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“The Government keeps all aspects of savings tax policy under review.” For the 2024/25 tax year, you can contribute a maximum of £4,000 to a Lifetime ISA (LISA) each year, which counts towards your overall annual ISA allowance of £20,000. The government adds a 25% bonus, up to a maximum of £1,000 per year, to your LISA savings.

Mr Lewis said previously: “I have a problem with it [the 25% Lifetime ISA withdrawal penalty] for first-time buyers buying a house. So what we have is, we have a succession of young people, who are saving in the vehicle they have been encouraged to save in by the state, who are then using, trying to use their savings to buy a first-time property.

“But, due to house price inflation, their property has just tripped above the £450,000 level. And then, not only do they not get the £1,000 a year bonus they were intended to get – which I understand, and it’s legitimate, there’s a threshold – they are fined by the state effectively 6.25% of their own money in order to withdraw that money to get the cash out. And the problem with that, is not just for the individuals who it affects.

“When I do television programmes on the Lifetime ISA, I have to warn people about that. And when I warn them about that, because you have to have the caveat ‘that you should only save in this if you are definitely going to buy a property under £450,000’, instantly, we have a huge dropout in the number of people who get it.

“So, the sentiment that that does is very negative. Generally, in every other way, the Lifetime ISA is potentially superior [than the Help to Buy ISA], but not in that way. And that needs to change.”

The 52-year-old said: “The nature of the penalty and the deterrent of the penalty is not just a problem in its own right, it’s a social equality and a social opportunity problem because it is a greater deterrent for those from less financially educated backgrounds.”