(Source: HMRC)
People whose income has been affected by Coronavirus and who want to access their Lifetime ISA funds early will no longer face an additional withdrawal charge, thanks to a temporary rule change.
The Lifetime ISA (LISA) is intended to help younger people save for their first home or for later life. As with many other long-term saving products, withdrawing funds early or for unintended purposes normally incurs a charge. But to help people who need access to their money earlier as a result of the pandemic, the charge on unauthorized withdrawals will be temporarily reduced. This means savers will get back all the money they originally put in to their LISAs, subject to any investment losses incurred on stocks and shares.
The LISA offers a 25% bonus, paid monthly, on up to £4,000 of savings each year. The current withdrawal charge is 25% of the amount withdrawn. This is to disincentivise people from using LISA funds, including the generous government bonus, for a purpose other than buying a first home or for later life as intended.
HM Treasury legislated for a temporary reduction in the LISA withdrawal charge to 20% between 6 March 2020 and 5 April 2021 (inclusive). This will mean account holders will only have to pay back any government bonus they have received, and not the full 25% charge.
The rule change will be backdated to 6 March, so anyone who has made an early withdrawal from their LISA since that date and paid the 25% withdrawal charge will have the difference refunded.
It is important for people to weigh up their options when considering the use of savings at this time. For further financial support and scenario planning the SAIL Team can assist you to map out your saving path ahead.