More than 200,000 people are expected to save into a Lifetime ISA in 2017/18, according to the Treasury.
In an impact assessment published today on the Treasury’s “help to save” initiatives, it is estimated that by the 2020 and 2021 tax years more than 800,000 people will be contributing to Lifetime Isas.
A Treasury impact assessment says: “The increase in take up will be driven by a number of factors, including increasing market coverage of the product and those who wish to use the Lifetime Isa to save for their first home after Help To Buy Isa closes to new applications at the end of 2019.”
The Treasury expects that those saving into a Lifetime ISA in 2017/18 will save £3,500 per year into their accounts – more than three quarters of the £4,000 annual allowance.
From next April, UK residents aged between 18 and 40 will be able to open a Lifetime ISA and pay in up to £4,000 each tax year with contributions qualifying for a 25 per cent Government bonus.
Savers can pay in and receive the bonus until they are 50 years old and they are eligible to withdraw from the account to buy a first home worth up to £450,000. Withdrawals can also be made from age 60 without a tax charge if the saver becomes terminally ill.
The impact assessment also estimates the cost of the Lifetime ISA to the Treasury will grow from £170m in 2017/18 to £830m in 2020/21.
The Treasury did not estimate what additional costs to HM Revenue and Customs and to providers that choose to offer the product would be, but added that these will be clearer when the FCA has finished consulting on how it will treat the Lifetime Isa.
Hargreaves Lansdown is among a number of providers to confirm its interest in offering the Lifetime Isa.
The Treasury says it does not believe that people will decide to cut down their savings in workplace schemes in favour of the lifetime Isa, but it does acknowledge that personal pensions may take a hit as people decide to switch their savings into the Lifetime Isa.
The impact assessment says: “These figures do not assume that any individuals opt out of workplace pension schemes to save into a Lifetime ISA. They assume that some individuals choose not to save into personal pensions and save into a Lifetime Isa instead, where this could be in their interest to do so.”