Temporary change to the LISA withdrawal rule

Think carefully before withdrawing your LISA money

To help those whose finances have been affected by the COVID-19 crisis, the government have temporarily reduced the Lifetime ISA withdrawal penalty charge to 20%, between 6 March 2020 and 5 April 2021.

The change to the penalty charge, from 25% to 20% means account holders will only have to pay back any government bonus they have received, but will not pay the additional withdrawal charge of 5%.

EQi director Richard Pearson comments:

“It is of course good news for anyone under financial strain that they can access their Lifetime ISA money in an emergency now without fear of extra penalty for withdrawal. It is the right decision from the Treasury.

“However, there must be a word of caution before anyone resorts to this. If the money is in a cash LISA then it won’t be an issue to withdraw money saved for emergency reasons. But any money saved into an investment LISA may be subject to the fluctuations of the stock market.

“As we have seen recently, markets have been severely troubled by coronavirus and therefore investors’ portfolio values could be diminished at the moment. Selling investments and withdrawing money now could crystalise losses and mean permanent reductions in the value of their savings. It should not be a decision taken lightly.”