SDLT Threshold Increase for FTBs Exposes Inequity in Life ISA Limit

SDLT Threshold Increase for FTBs Exposes Inequity in Life ISA Limit

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Written on 26 October 2022 by Ray Boulger

SDLT Threshold Increase for FTBs Exposes Inequity in Life ISA Limit

The recent increase in the threshold from £300,000 to £425,000 for FTBs (first-time buyers) to start paying SDLT (Stamp Duty Land Tax) and the increase in the maximum purchase price to qualify for this benefit from £500,000 to £625,000 highlights an inequity in the Lifetime ISA rules.

Since Lifetime ISAs were launched in April 2017, residential property prices have increased substantially but there has been no change in the maximum acceptable purchase price when using a Lifetime ISA for all or part of the deposit.

FTBs, both individuals and couples, have been encouraged to use a Lifetime ISA to save for a deposit but if they now want to buy a property priced over £450,000 they can’t use their Lifetime ISA savings without suffering a 25% penalty on withdrawal. In this situation many FTBs have little choice but to incur the 25% penalty as otherwise they would not have enough in deposit to buy their new home.

The Government should not expect FTBs to have to guess how much house prices will increase by the time they are ready to buy when deciding whether to use a Lifetime ISA to save.

Notwithstanding his many other pressing problems, The Chancellor must address this inequity in the Budget by substantially increasing the maximum purchase price allowed with a Lifetime ISA.

Based on the UK House Price index, UK Residential Property Prices increased by 35.3% between April 2017 and August 2022. Increasing the current £450,000 Lifetime ISA limit in line with the increase in house prices would take it to £608,850.

However, in keeping with the Government’s stated intention of tax simplification, The Chancellor could score an easy win at negligible cost by bringing the maximum allowable price in line with the new maximum price for FTBs to qualify for the higher SDLT threshold – i.e. £625,000.

At the same time, again to reflect the increase in property prices since 2017, The Chancellor should consider increasing the current maximum annual investment limit of £4,000 into a Lifetime ISA.

Lifetime ISAs are a regulated product but the Government sets a bad example by exempting itself from FCA regulation. However, in my opinion, if the Government was regulated by the FCA the GOV.UK website would fail the basic FCA requirement that all marketing material should be “clear, fair and not misleading”. 

The opening sentence on the Lifetime ISA website is:

“You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life.” No ifs, no buts! You have to look much lower down the page, in fact the bottom half, to find any reference to the restriction of a maximum purchase price at £450,000.

The FCA quite rightly expects important restrictions on a product to be prominent in any marketing material. To be compliant the £450,000 limit should be clearly stated in the first section of the website.

Category: Ray Boulger

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