Financial journalist Martin Lewis has issued a stark prediction for UK savers ahead of the upcoming Autumn Budget, warning that the cherished tax-free allowance for Cash ISAs could be dramatically reduced.
What Changes Are Expected for Cash ISAs?
On Wednesday, November 26, Chancellor Rachel Reeves will deliver the second budget since the Labour Party formed the government. Experts are sounding the alarm that she may target the popular Cash ISA, with the annual tax-free allowance potentially being slashed from £20,000 to as low as £10,000.
This move would represent a significant blow to millions of Britons who currently shield their savings from tax within these accounts. The budget announcement is highly anticipated, with many watching to see if the government will seek to raise revenue through this channel.
Potential Lifeline for First-Time Buyers and Pension Savers
For those saving for their first home or retirement, the Lifetime ISA (LISA) remains an option. This scheme allows individuals to save up to £4,000 each year, with the government adding a 25% bonus. This means savers who maximise their contributions receive an extra £1,000 annually from the state.
However, the LISA comes with a major drawback: a hefty 25% withdrawal penalty if the funds are used for anything other than a first home purchase or retirement after age 60. This penalty is so severe that it not only reclaims the government bonus but also eats into the saver's original capital.
Martin Lewis's Campaign for LISA Reform
Martin Lewis has been publicly urging the Labour government to implement crucial reforms to the Lifetime ISA. His primary concerns are the property price threshold and the punitive withdrawal charge.
In a message on the social media platform X last week, Lewis stated, "I think we may finally see some changes to the Lifetime ISA in [this week's] Budget."
He highlighted the current unfairness for those buying properties above the £450,000 limit. These buyers not only forfeit the bonus but are hit with an "effective fine of 6.25%" of their own money.
Lewis predicts one of two potential outcomes, both of which he has actively campaigned for:
- Abolishing the penalty for those purchasing a property above the threshold, allowing them to withdraw their original savings in full without the bonus.
- Increasing the property price cap to a figure in the £500,000s, which would reflect inflation since the LISA's launch in 2017.
While he considers the possibility of both changes being implemented unlikely, he remains hopeful that at least one will be announced, marking a significant victory for consumer finance and fairer saving rules.
