Chancellor Rachel Reeves is preparing another overhaul of ISAs after the Treasury confirmed a 22 per cent tax charge on millions of savings accounts.
The Treasury has opened a consultation on a new savings product aimed at helping first-time buyers get onto the property ladder, which would replace the current Lifetime ISA.
This follows the department’s announcement that a 22 per cent levy will apply to cash held in stocks and shares ISAs.
Reeves has faced criticism over her ISA reforms after previously revealing that the £20,000 tax-free allowance for cash savings would be cut to £12,000.
The changes are due to take effect from April 2027. Alongside this, the Treasury is pushing forward with plans for a new first-time buyer savings account to replace the Lifetime ISA.
However, the consultation document leaves several key details unclear, including the government bonus rate, yearly contribution limits, and the maximum property value eligible under the scheme.
The Government has said existing Lifetime ISA holders will still be able to continue saving under the current rules without interruption.
Ministers believe the Lifetime ISA has become too complicated, with many savers being hit by penalty charges after making unauthorised withdrawals.
Rachel Vahey, head of public policy at AJ Bell, said the consultation outlines the broad shape of the new product but leaves major questions unanswered.
She said: “Today’s consultation gives us a general picture of the new First Time Buyer ISA, but many of the most important details remain unclear.
“Without information on the government bonus, contribution limits or property price cap, it’s hard to judge whether this will genuinely improve support for aspiring homeowners.”
Vahey added that since the Lifetime ISA launched in 2017, it has helped thousands of young people buy their first home.
She also noted the scheme has had weaknesses, particularly the withdrawal penalty, which has caused problems for savers needing access to their money for reasons other than buying a qualifying property or reaching age 60.
Jeremy Cox, head of strategy at Coventry Building Society, offered a more positive view while acknowledging the product’s flaws.
He said: “Lifetime ISAs have never been perfect, but they’ve helped many people take their first step onto the housing ladder. We welcome the consultation and look forward to engaging with the Government on its proposals.”
