The government has announced that the charge for making an unauthorised withdrawal from your LISA account (Lifetime ISA) will be temporarily reduced for tax year 20/21 (April 6th 2020 to April 5th 2021) to 20% of the amount withdrawn. From the start of tax year 21/22 it will return to 25%.
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or you have a terminal illness, then you will forfeit the withdrawal charge of, for this tax year, 20% of the figure withdrawn.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charge can potentially be greater than the bonus you received, as the withdrawal charge is calculated on the figure withdrawn, which may include income and, or, capital gains.
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, currently 20%. 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.