Withdrawal Penalty on Lifetime ISAs (LISA) Removed For One Year

Tuesday 26th May 2020

Withdrawal Penalty on Lifetime ISAs (LISA) Removed For One Year

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Article By Jan Bailey

Withdrawal Penalty on Lifetime ISAs (LISA) Removed For One Year

Lifetime ISAs (LISAs) are longer-term tax-free savings accounts that allow those aged between 18-40 to save up to £4,000 per year (2020/21) and receive a Government bonus of 25%. They are designed particularly for first-time buyers to use towards a deposit for their first home, or can be put towards future retirement savings once investors reach the age of 60.

There has previously been a significant disincentive for investors to withdraw savings from a LISA for any reason other than buying a qualifying home or for retirement after 60. This amounted to a 6.25% penalty. For example: if £1,000 was put into a LISA, with the Government incentive of 25%, the investment pot would be worth £1,250. If the investor decided to withdraw the money for anything other than a deposit or for future retirement, the Government charge was 25%, which would bring the value of the investment down to £937.50.

The Government has now decided that in order to help people access their funds during the Coronavirus pandemic, the withdrawal charge will be 20%. In the example given above, if you were to decide to withdraw your £1,250 investment, you would now receive £1,000 – the amount of your original investment. This arrangement has been backdated to 6 March 2020 and will be in place until 5 April 2021. Anyone who has withdrawn their money since 6 March 2020 and paid a 25% charge will have the difference refunded.

Source: https://www.moneysavingexpert.com/savings/lifetime-isas/#tip4

The above example is for illustrative purposes only and is based upon our current understanding of tax law and HM Revenue & Customs practice as at May 2020. Brunsdon Financial are not responsible for the content of third party websites.