Is this unloved ISA worth your investment?

With changes to Individual Savings Accounts (ISAs) expected in the Autumn Budget, one existing variant has been heavily criticised by the Treasury Select Committee.  

The Lifetime ISA (LISA) made its debut in George Osborne’s final Budget in March 2016. At the time, it appeared to be a proposal for a new form of pension savings product and the potential precursor to a radical overhaul of the pension tax regime. After Osborne was replaced by Philip Hammond in the wake of the Brexit vote, it was doubtful whether the LISA would come into existence. Nevertheless, it was eventually launched in April 2017. 

Many ISA providers decided to give LISA the cold shoulder. The product was seen as too complex and difficult to advise on. Eight years on from its launch, only one in seven ISA providers also offer LISAs. It was probably LISA’s mediocre success that caught the attention of the Treasury Select Committee at the start of this year.  

At the end of June, the Committee issued its report, which highlighted several problems with LISAs, including: 

• The early withdrawal charge: This is levied at 25% of the amount withdrawn, clawing back more than the bonus given on each contribution. In 2023/24, HMRC collected £75 million of early withdrawal charges, a level which the Committee thought “may indicate that the Lifetime ISA is not working as intended”. 

• Dual purpose structure: LISA withdrawals can be made charge-free from age 60, or if the funds are used towards the purchase of a first home, valued at up to £450,000. These two goals – one long term, the other short term – would normally require different strategies of investment, but some LISAs are only available as cash plans, with no stocks and shares component. 

• Cost to the Exchequer: Although the maximum annual LISA subscription is only £4,000, the total cost to the government of the 25% subscription bonus is projected to be about £3 billion over the five years to 2029/30. At a time when the Chancellor is scrabbling for every penny, the Committee questioned whether LISAs were good value or an unnecessary handout.  

The Committee’s report could sound the death knell for new LISAs, so if you want to invest in one, act soon – but only after taking advice, as there may be better options.  

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. 

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.  

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice. 

Important information:

This blog is for general information only and does not constitute advice. We recommend you speak to your financial adviser before making any decisions. The information is aimed at retail clients only.

No statements or representations made in the article are legally binding upon Shackleton Advisers Limited or the recipient.

All references to taxation are in relation to UK taxation and are based on our current understanding of UK laws and HMRC practices. Tax reliefs may change in the future and may not be maintained.  Tax treatment is based on your individual circumstances. All other information is based on our understanding of current legislation and regulation which may be subject to change.

Shackleton is a trading name of Shackleton Advisers Limited who are authorised and regulated by the Financial Conduct Authority. FCA Number 163291. Shackleton Advisers Limited is registered in England and Wales, no. 04129116. Registered Office: 23 Coleridge Street, Hove, BN3 5AB. 

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