From the start of tax year 21/22 the LISA withdrawal charge will move back up to 25% for unauthorised withdrawals from your LISA account (Lifetime ISA).
What is an unauthorised withdrawal?
Each tax year you can subscribe a total of £ 4,000.00 to your LISA account, this will use up part of your total ISA allowance of £20,000.00, that is available to invest across all of the ISA product range.
For every subscription invested into a LISA account you receive a government bonus of 25%, e.g., a subscription of £ 4,000.00 will gain a government bonus of £ 1,000.00. This bonus will be collected by your LISA provider and paid into your LISA account, usually within 6 weeks.
You can withdraw funds from your LISA account at any time, but unless you are doing so as at result of buying your first home, you are 60 years old or older, or you have a terminal illness, then you will forfeit the withdrawal charge of 25% of the figure withdrawn.
Note, the withdrawal charge can potentially be greater than the bonus you received, as the withdrawal charge is calculated on the total figure withdrawn(including the charge), which may include income and, or, capital gains.
For example, if an investor wishes to receive £ 1,000.00, they will need to withdraw £ 1,333.33, of which £ 333.33 will be paid back to HMRC by the LISA provider.
How is the withdrawal charge collected?
When you request a cash withdrawal from your LISA account, your provider will only allow you to withdraw those funds, if you have sufficient additional cash within the LISA account to pay HMRC the withdrawal charge 25%. The provider will debit your LISA account with the charge and advise HMRC of your withdrawal and arrange with HMRC for the charge to be collected from the provider.