The Department for Work and Pensions (DWP) has recently clarified the rules surrounding Universal Credit eligibility and the treatment of savings, specifically those held in Lifetime ISAs (LISA).
This clarification followed a question posed in Parliament regarding whether Lifetime ISAs would be exempt from the capital rules when applying for Universal Credit.
What is a Lifetime ISA (LISA)?
A Lifetime ISA (LISA) is a savings product designed to help individuals save for their first home or retirement.
The key benefit is that the government adds a 25% bonus to any contributions made. You can save up to £4,000 annually, earning a maximum bonus of £1,000 each year.
DWP’s Response to the LISA Question
In response to the inquiry about Lifetime ISAs, DWP Minister Sir Stephen Timms stated that there are no current plans to alter the treatment of LISAs when assessing Universal Credit eligibility.
He emphasized that it’s essential for means-tested benefits, such as Universal Credit, to consider all types of savings, including investments where the government contributes to encourage saving—like the Lifetime ISA.
Key Points from Sir Stephen Timms’ Statement:
- Lifetime ISAs will not be exempt from the capital rules when applying for Universal Credit.
- All forms of savings, including those with government contributions, are included in the capital assessment.
- If a person’s savings exceed £16,000, they will not qualify for Universal Credit until their capital drops below that threshold.
Savings and Universal Credit: What You Need to Know
Capital Threshold for Universal Credit Eligibility
- If your capital exceeds £16,000, you will be required to rely on your savings until they reduce to below £16,000 to qualify for Universal Credit.
- Savings that fall within this limit will still be considered as part of your capital when assessing eligibility for benefits.
Universal Credit Rate Changes for 2025
The Universal Credit payments saw an increase of 1.7% starting this month. The revised standard allowance rates are as follows:
| Category | New Monthly Rate |
|---|---|
| Single, under 25 | £316.98 |
| Single, 25 or over | £400.14 |
| Couple (both under 25) | £497.55 |
| Couple (one or both 25 or over) | £628.10 |
These increases are part of the government’s commitment to providing support to individuals and families who qualify for Universal Credit.
Discussion on Lifetime ISAs in Parliament
The future of Lifetime ISAs was also a topic of discussion in Parliament, where Treasury Minister Emma Reynolds provided insights into potential reforms.
While she confirmed that the government is considering ISA reform, she did not provide details about any changes or whether the Lifetime ISA could be scrapped.
Dual Purpose of the Lifetime ISA
Minister Reynolds highlighted the dual-purpose nature of the Lifetime ISA, where the funds can be used either for purchasing a first home or for retirement savings.
She noted that this flexibility is one of the key advantages of the LISA, as it provides a backup option in case homeownership plans do not materialize.
Key Facts About Opening and Using a Lifetime ISA
- You can open a LISA between the ages of 18 and 40.
- Deposits can be made into the LISA until you reach the age of 50.
- If you plan to use the funds for retirement, you can access them at the age of 60, but you must wait a decade after stopping deposits before you can access your retirement savings.
The rules surrounding Universal Credit and the treatment of Lifetime ISAs remain firm, with no changes planned for the foreseeable future. The Lifetime ISA continues to be a valuable tool for both first-time homebuyers and those saving for retirement, offering a 25% government bonus on savings.
However, it’s important to understand how your savings, including those in LISAs, are considered when applying for Universal Credit. Make sure you are aware of the capital limits and the increased Universal Credit payments for 2025 to ensure you are receiving the maximum benefits available.
FAQs
What is the maximum bonus you can earn on a Lifetime ISA?
The maximum bonus you can earn is £1,000 per year, as the government provides a 25% bonus on deposits up to £4,000 annually.
Can I use a Lifetime ISA for retirement and a home purchase?
Yes, the Lifetime ISA is flexible, allowing you to use the savings for either a first home or towards your retirement.
How much savings can I have and still qualify for Universal Credit?
To qualify for Universal Credit, your savings must be below £16,000. If you have more than this, you will need to use your savings until your capital falls below this threshold.