Personal taxes and finances

Government reduces the penalty for Lifetime ISA withdrawals

With thousands of workers on lower incomes as a result of the coronavirus pandemic, it is not surprising that many individuals need to dip into savings to support themselves.

Unfortunately, those with money saved in a Lifetime ISA (LISA) face a penalty for doing so. To help these savers, the Government has announced that the withdrawal penalty has been cut from 25 per cent to 20 per cent to help savers who want to access funds early during the current crisis.

The change to the rules is only temporary and only relates to those with a LISA who want to access their cash during the current financial year.

Before this change savers paid a penalty of 25 per cent on withdrawals for any reason other than putting down a deposit on their first house or withdrawing money after their 60th birthday.

The amendment to the rules means account holders will only have to pay back the Government bonus (20 per cent) that they would have received and not the additional withdrawal charge of five per cent.

John Glen, Economic Secretary to the Treasury, said: “We know that some people are experiencing financial difficulties during these unprecedented times and we want to make it as easy as possible for people to access their savings, especially if it helps them avoid falling into high cost or unmanageable debt.

“That’s why we are reducing the withdrawal charge for LISAs, so people can access their funds to help get them back on their feet.”

The rule change has been backdated to 6 March, so anyone who has withdrawn their money early since that date will have the difference refunded.

Further reading

We think you’d like these posts