HMRC is set to punish UK households accessing their OWN CASH under cruel and problematic Lifetime ISA rules, it has been warned. New HMRC research shows confusion over the Lifetime ISA, with savers split between using it for a first home or retirement.
Many people have faced the difficult battle over the need to save for the future versus the need to pay their bills in recent years, and higher costs have often won. This has forced them to stomach the 25 per cent charge to gain access to their money, experts have warned.
42 per cent of those not currently holding a LISA said a change to the rules so that original savings would not be lost with the withdrawal charge would be most likely to motivate them to open one, new data shows.
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Rachael Griffin, tax and financial planning expert at Quilter, said: "New HMRC research released today highlights how confused the purpose of the Lifetime ISA (LISA) has become.
"Nearly half of account holders opened one to save for their first home, while almost as many used it for retirement.
"By attempting to serve two distinct goals, the product risks failing to meet either effectively - echoing concerns raised by the Treasury Committee and many in the industry."
Ms Griffin said: HMRC's own data shows 86% of those making unauthorised withdrawals knew they would lose both the bonus and some of their own savings, but did so anyway, which underlines how desperate people were for access."
Ms Griffin went on to say: "The profile of LISA holders also raises questions. Nearly half sit in the higher or additional rate tax bands, and most live in London and the South East.
"This is far from a universally accessible savings vehicle and risks benefitting those already more financially secure.
"For first-time buyers, the LISA has provided genuine help. Nearly a third of those who used it to buy a property said the government bonus was essential in making the purchase.
"But the majority admitted they likely would have bought anyway, just with more difficulty, reinforcing the concern that the LISA often diverts existing savings rather than generating new ones.
"Taken together, these findings underline why the LISA should be central to the Treasury's upcoming ISA consultation. Small tweaks won't be enough.
"A fundamental rethink is needed to create simpler, clearer products that genuinely meet people's savings goals, rather than leaving them penalised or confused."