What is the Lifetime ISA withdrawal penalty?If you withdraw money from a Lifetime ISA (LISA) for any reason other than buying your first home, reaching age 60, or terminal illness, a 25% government withdrawal charge applies. This charge effectively costs you more than just losing the bonus — it also eats into your own contributions. The LISA withdrawal charge is 25% of the amount withdrawn. On a £1,000 withdrawal, you receive £750 back — losing £250. This includes your own contributions, not just the government bonus. How the 25% charge works in practiceThe maths catches many people out. If you save £4,000 and receive a £1,000 government bonus (25% of £4,000), your pot is £5,000. Withdrawing the full £5,000 incurs a 25% charge of £1,250 — leaving you with £3,750. You lose £250 of your own money, not just the bonus.
When can you withdraw from a LISA without penalty?
What if the property costs over £450,000?If you use a LISA to buy a home priced above £450,000, the withdrawal penalty applies to the full amount. Many London buyers fall into this trap — the £450,000 cap has not been increased since the LISA launched in 2017 and excludes a significant portion of the market in expensive regions. Can the LISA withdrawal charge be waived?During Covid-19, the government temporarily reduced the charge from 25% to 20% (meaning no loss of your own contributions). This was reversed in April 2021 — the charge reverted to 25%. There is no current proposal to change this, though the 2024 Treasury review recommended increasing the property cap. Alternatives if you need access before 60
Verdict The 25% charge costs more than just the bonus The LISA penalty is poorly understood — it eats into your own savings, not just the government bonus. Only open a LISA if you are confident the funds are for a first home under £450,000 or for retirement after 60. Frequently asked questionsWhat is the Lifetime ISA withdrawal penalty in 2026? 25% of the amount withdrawn. This applies to any withdrawal not made for a qualifying first home purchase, from age 60, or due to terminal illness. Can I close a Lifetime ISA and get my money back? Yes, but the 25% withdrawal charge applies. You will receive less than you put in if the fund has not grown enough to offset the penalty. What happens to a Lifetime ISA if you die? The LISA passes to your estate without the withdrawal penalty. The funds form part of your estate for inheritance tax purposes. Can I transfer a Lifetime ISA to a standard ISA? No. A LISA can only be transferred to another LISA provider. Transferring to a Cash ISA or Stocks and Shares ISA is not permitted and would trigger the withdrawal charge. |
Lifetime ISA Withdrawal Penalties UK: What You Need to Know 2026
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