Withdrawing from a Lifetime ISA for anything other than a qualifying first home, age 60 or terminal illness triggers a 25% charge on the amount withdrawn. Because the bonus was 25% on the way in, the charge takes back more than the bonus: savers lose 6.25% of their own money on every unauthorised withdrawal.
TL;DR · LAST REVIEWED 25 JULY 2026
- The 25% withdrawal charge applies to the whole amount withdrawn: savings, bonus and growth together
- Net effect: the entire government bonus returns plus 6.25% of the saver's own money is lost
- Exempt withdrawals: a first home at £450,000 or less (12 months after the first payment, via the conveyancer), age 60, or terminal illness
- The £450,000 property cap has been fixed since 2017 while house prices have grown past it in parts of the country
- From April 2028 the LISA is replaced by a new ISA solely for first time buyers; existing accounts continue under current rules
| Step | Amount |
| Saver contributes | £1,000 |
| Government bonus at 25% | +£250 |
| Balance | £1,250 |
| Unauthorised withdrawal charge (25% of £1,250) | −£312.50 |
| Saver receives | £937.50: a 6.25% loss of own money |
KEY FACTS
- Charge: 25% of any unauthorised withdrawal, applied by the provider before payout
- £1,000 saved becomes £1,250 with the bonus; withdrawing it returns £937.50, a 6.25% loss of own money
- Qualifying first home: price £450,000 or less, at least 12 months after the first LISA payment
- Penalty free access in all cases from age 60, or on terminal illness with under 12 months life expectancy
- Annual limit £4,000 with a 25% government bonus, inside the £20,000 ISA allowance; open between ages 18 and 39
- Replacement first time buyer ISA arrives April 2028; consultation on its final shape continued through 2026
Why the charge takes more than the bonus
The charge applies to the withdrawn total of savings plus bonus plus growth, not just the bonus element. A 25% deduction from a balance that grew by 25% removes the whole bonus and then reaches 6.25% into the saver's original money.
On investments that have grown, the charge also claims a quarter of the growth. On investments that have fallen, it still applies to whatever remains, compounding the loss. The asymmetry is the single most misunderstood feature of the product.
The three exemptions, precisely
No charge applies when funds go toward a first home priced at £450,000 or less, at least 12 months after the first LISA payment, paid through the conveyancer; when the saver is 60 or over; or on terminal illness with under 12 months of life expectancy.
Everything else pays: a home above £450,000, a purchase inside the first year, an emergency, a second property. The £450,000 cap has not moved since the product launched in 2017, and buyers in higher priced areas face the charge on their own money simply for buying where they live.
The 2028 reform
The government announced during 2026 that from April 2028 the Lifetime ISA closes to a successor product: a new ISA designed solely for first time buyers, dropping the retirement function entirely.
Existing LISA holders keep their accounts, can continue contributing indefinitely under current rules, and anyone eligible between 18 and 39 can still open a LISA ahead of the change, preserving access cheaply with a small deposit. The £4,000 limit and 25% bonus continue in the meantime, and the widely criticised charge structure is central to the consultation, but as of mid 2026 the 25% charge stands unchanged.
Using the product without being caught
The LISA rewards exactly two firm plans: a first home at or under £450,000, or leaving the money untouched to age 60. Savers confident of neither should weigh the lock in against a standard ISA's flexibility before contributing.
Money already inside and needed early has no free exit: the charge applies, and the only mitigation is withdrawing the minimum required. For retirement saving specifically, matched workplace pension contributions beat the LISA bonus for employees, since matching is an immediate 100% uplift against the LISA's 25%.
RELATED GUIDES
DISCLAIMER
This article is editorial information, not financial advice. Kael Tripton Ltd is not authorised or regulated by the Financial Conduct Authority. Figures were correct at the last review date shown above; verify current rates and rules with the primary sources listed below before acting.
Frequently asked questions
How much does the LISA withdrawal charge actually cost?
25% of the amount withdrawn, which equals the whole government bonus plus 6.25% of the saver's own money. On a £1,250 balance built from £1,000 of savings, the charge takes £312.50.
When can I withdraw without a penalty?
Buying a first home at £450,000 or under, at least 12 months after the first payment and paid via the conveyancer; from age 60; or on terminal illness. All other withdrawals pay the 25% charge.
What if my first home costs more than 450,000 pounds?
The exemption fails entirely and the charge applies to whatever is withdrawn toward the purchase. The cap has been fixed since 2017.
What is happening to the Lifetime ISA?
From April 2028 it is replaced by a new ISA solely for first time buyers. Existing LISAs continue under current rules, and eligible savers can still open one before the change.
Should I open a LISA before 2028?
Eligible savers aged 18 to 39 can secure access with a small deposit and decide on full funding later. The product rewards a sub £450,000 first home or patience to 60, and penalises everything else.
Is a LISA better than a pension for retirement?
For employees with matched workplace contributions, the pension match beats the LISA bonus: matching is an instant 100% uplift against 25%. The LISA retirement case is strongest for the self employed.
SOURCES
- GOV.UK: Lifetime ISA – accessed 25 July 2026
- GOV.UK: Individual Savings Accounts – accessed 25 July 2026
