The expert has been campaigning for years for the rules to be changed
Martin Lewis has issued a stark warning over a “ridiculously unfair” penalty that savers are forced to pay. The consumer champion revealed he has spent years campaigning for the policy to be overhauled.
In a recent episode of his BBC podcast, Mr Lewis spoke in detail about Lifetime ISAs. With the end of the tax year fast approaching, savers may wish to consider topping up their ISAs before the £20,000 ISA allowance resets. Lifetime ISAs are designed as a savings vehicle for either your first home or your retirement.
The funds can be put towards your first property or accessed once you reach the age of 60. You can contribute up to £4,000 per tax year, with all deposits receiving a 25 per cent bonus, meaning savers could pocket an extra £1,000 annually.
However, one key restriction on using the funds towards a first home is that they can only be used for properties valued at £450,000 or below. With soaring house prices, this leaves some first-time buyers unable to access their savings without incurring a penalty.
Should you use the funds for a property exceeding this value, or make any other unauthorised withdrawal, a 25 per cent penalty is applied. This effectively wipes out the bonus along with a portion of your original contributions. Mr Lewis said he has been fighting for some five years to get the property threshold raised.
He explained: “I’ve spoken to Rachel Reeves about it. She said she’s looking at doing it, she’s told me that when they do the consultation on the LISA replacement, they will look at whether they will increase the £450,000.”
The Government confirmed in its Autumn Budget 2025 that the Lifetime ISA would be scrapped. Mr Lewis set out his concerns about the existing regulations.
READ MORE: Holidaymakers urged to book flights in next 36 hours ahead of price hikeREAD MORE: Martin Lewis’ ‘urgent April deadline’ for people who bought car between 2007-24 on finance
Ridiculously unfair
He said: “Clearly, it’s ridiculously unfair to have that frozen. People got these products in 2017 thinking they were going to be able to use it.
“House prices have gone up, the threshold hasn’t, some people have been priced out and they’re now having to pay a fine, a penalty to the state, for having opened a product that the state wanted them to, to be a first time buyer – they are going to be a first time buyer, but they’re priced out of the market. Not only are they not going to get their bonus, but they’re paying an effective penalty, so it’s hideously unjust.”
The cash expert said he is uncertain about the future of the property cap. He told listeners: “I don’t know what’s going to happen.
“I’ve had politicians look at me and effectively say, yes we’ll up that limit at some point, and they’ve not done it. So you simply have to work on the assumption for the moment, that if you’ve got a Lifetime ISA, the limit is £450,000 and it’s not going to change.
“I hope to be wrong, but I wouldn’t be betting on being wrong.” A Lifetime ISA can be opened between the ages of 18 and 39, and you can make contributions until you reach 50.
