LISA Withdrawal Changes May 2020

Important Lifetime ISA Withdrawal Information

On 1st May 2020 HM Treasury announced all Lifetime ISA (LISA) holders whose income had been affected by the COVID-19 (Coronavirus) pandemic, will see the charge on unauthorised withdrawals temporarily reduced from 25% to 20% which means LISA holders will only pay back the government bonus they have received.

However, LISA holders are strongly encouraged not to draw out money from their LISA unless it is absolutely essential. 

Examples:


Example 1
Assuming interest isn’t included, if you had £800 in your Lifetime ISA you will have received a 25% government bonus of £200, giving you a pot of £1,000. If you wish to withdraw the entire pot, a 20% charge will apply to the full £1,000. You’ll have to pay a government withdrawal charge of £200. This will leave you with £800, which is the same as you originally paid in.


Example 2
If you need enough cash to cover a £120 bill, you’ll have to withdraw more than you actually require. Withdrawing £150 means you pay a 20% withdrawal charge of £30, and receive £120 in cash to meet the bill.


This new rule has been backdated to 6th March 2020 and will be in place until 5th April 2021. Therefore if you’ve made an unauthorised withdrawal from your LISA since 6th March 2020 due to coronavirus and have been charged at the old rate of 25%, the difference will be paid back into your LISA. Please contact us if this doesn’t happen automatically.


Please see https://www.gov.uk/lifetime-isa for the latest information.