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Foster Denovo|News & opinion|News|Temporary reduction in the charge for non-eligible withdrawals from a lifetime ISA (LISA)

Temporary reduction in the charge for non-eligible withdrawals from a lifetime ISA (LISA)

The Treasury has announced a temporary reduction in the charge for non-eligible withdrawals from a lifetime ISA (LISA) with effect from 6th March 2020 to 5th April 2021.

Non-eligible withdrawals are those made before the age of 60, except when buying your first home, serious ill-health or the death of the LISA holder. This reduction is being made to help savers access their funds during the Covid-19 crisis without being penalised.

The LISA allows people under 40 years old (at the time of opening the account) to save up to £4,000 a year towards the purchase of their first home and/or retirement, while also providing an additional 25% bonus of up to £1,000.

Before this policy shift, if you wanted to withdraw your money early you would be charged 25% of the balance. This meant that as well as repaying the 25% bonus, you would also be paying an additional charge of 6.25%, as the exit fee was based on the total balance including the bonus.

In real terms this meant that there was effectively a 6.25% penalty charge if you were to withdraw your funds early.

Now, the government’s announcement lowers the 25% charge to 20%, which essentially means that if you were to access your funds early to help you through the current coronavirus pandemic you would get back the money you originally put in. So, there is now no real exit fee on these withdrawals.

All non-eligible withdrawals that have been made since 6th March 2020, to which a 25% charge has been applied, will have the difference between this amount and the amount that would have been paid under the revised 20% charge refunded.

 

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