Overview
- On his BBC podcast, Martin Lewis said some Lifetime ISA holders have no easy way to avoid the 25% withdrawal charge that removes the government bonus and a slice of their own cash.
- Lifetime ISAs allow up to £4,000 a year with a 25% top‑up, yet any withdrawal not for a first home or after age 60 triggers a fee that effectively takes 6.25% of personal savings.
- Money in a Lifetime ISA counts toward Universal Credit savings limits, so balances above £6,000 cut payments by £4.35 per £250 and savings above £16,000 end eligibility, while pension pots are ignored.
- Lewis called the £450,000 property cap for using a Lifetime ISA on a first home “ridiculously unfair,” as rising prices leave some buyers unable to use their savings without paying the penalty.
- The government said in the Autumn Budget 2025 that it will replace the product and may review the cap during consultation, yet no rule change has taken effect, so Lewis urges workers to prioritise employer pensions and notes tax relief of 20% for basic‑rate and 40% for higher‑rate payers.