The Lifetime ISA (LISA) is coming under fire as new HMRC research reveals how the product is falling short for first-time buyers with mounting calls for a radical overhaul.
Launched in 2017, the LISA was meant to help people save for a first home or retirement by offering a 25% government bonus on contributions of up to £4,000 a year.
But HMRC’s latest survey of 1,600 account holders suggests the scheme is increasingly out of step with the housing market.
Just under half (46%) of savers opened a LISA to buy a property, but only 16% had successfully used it within the rules to get on the ladder.
LOCKED OUT
Of those, 29% said the government bonus was “essential” in making their purchase possible. Yet in London and the South East, where the average first-time buyer home often exceeds £450,000, many reported being locked out by the unchanged cap.
Rachael Griffin, tax and financial planning expert at Quilter, warns that the £450,000 ceiling is no longer realistic.
She says: “Many who have saved diligently find they cannot use their LISA for the property they need without facing a financial penalty.
“In hot markets, buyers are being outbid by small sums over the threshold because sellers know it strips them of their LISA advantage. It effectively ties their hands.”
STING IN THE TAIL
The research also highlights the sting of the withdrawal penalty. Just over one out of 10 (11%) savers have paid the 25% charge, which not only claws back the government bonus but eats into their own savings.
HMRC found that 86% knew the risk but withdrew anyway, reflecting the financial pressures many households face.
Critics also point out that nearly half of LISA holders fall into higher or additional-rate tax bands, raising questions about whether the scheme truly serves those struggling most to buy.
