Martin Lewis says ‘do not put in one other penny’ forward of Budget
Chancellor Rachel Reeves is expected to announce major changes at the Budget
Martin Lewis has issued a warning to individuals with a specific type of ISA, advising them not to deposit any more money into it before Wednesday’s Budget. Chancellor Rachel Reeves is anticipated to announce changes to the tax-free savings and investment accounts in her eagerly awaited plans.
Speculation has been rife that she may decrease the tax-free amount that can be deposited into cash ISAs, or perhaps encourage people to invest more using a stocks and shares ISA. However, Mr Lewis was specifically discussing the Lifetime ISA (LISA) on his podcast.
The LISA enables individuals aged between 18 and 39 to save for a first-time home worth no more than £450,000. You can contribute up to £4,000 annually until you reach 50, and the Government will add an extra 25 per cent on top of everything you pay in.
If you withdraw your funds before turning 60 for any reason other than purchasing a first home, you will incur a 25 per cent Government penalty – which could result in you receiving less than you have paid in. Some opt to withdraw the money at 60 to assist with retirement.
Mr Lewis fielded a call from Theo, who asked whether it would be beneficial for him to maximise his LISA contributions each year, given his hopes to buy a flat in London with his partner in approximately three years’ time. According to Rightmove, the majority of properties sold in London over the past year were flats, fetching an average price of £536,666, reports Lancs Live.
Theo was concerned that the cost of his flat might exceed the £450,000 limit, rendering the LISAs he and his partner hold useless as they would be subjected to the 25 per cent Government penalty.
In response to Theo’s query, Mr Lewis said: “Absolutely, I would not be putting another penny into a Lifetime ISA until this Wednesday because I would say there is a plausible possibility that we will see a change to the Lifetime ISA in the Budget on Wednesday.
“Now, I have evidence to the Select Committee talking about Lifetime ISAs earlier in the year. They have reported to the Chancellor that they think there are some problems in the Lifetime ISA. One of them is that the threshold has not been increased since 2017, even though house prices have gone up. So, on the back of that and the work I have been doing, I think there is a 50-50 chance of one of two things happening in the Budget this year.
“Either the Chancellor will follow my recommendation, which I would like her to, which is if you buy a proper house over £450K, then the penalty for withdrawing your money that you normally pay when not buying a qualifying property (would go). You would not get your bonus, but you would get your money back. That is my suggestion.
“The alternative is that she wants the threshold up. Now I think there is more of a chance of that, maybe going up to £500,000 £550,000 or £600,000 – I think there is more of a chance of that because it is simpler, you can do that at the stroke of a pen. Changing the penalties is slightly more technical. You never know, we could get both.
“The first thing I would say is don’t do anything now. I’m not saying it will change, I am not privvy to that information, but I think it is strongly possible that something happens.”
Mr Lewis suggested that it was still worthwhile for Theo’s partner to establish a LISA and deposit just £1 before reaching her 40th birthday, purely to preserve the opportunity of utilising it later once she is over 40.
This would ensure that, should the threshold increase or the penalty be scrapped – or indeed both – she would already possess an active LISA account that could still be used for property purchases.
