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Sign our petition – keep the reduced LISA withdrawal charge

With the temporary cut to the LISA withdrawal charge scheduled to end on 5 April 2021, we're urging the Treasury to make it permanent.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The Lifetime ISA (LISA) launched in 2017 to help 18-39 year olds save for their first home or retirement.

The government pays a 25% bonus on money put into a LISA. The maximum someone can put into a LISA each tax year is £4,000. Meaning a maximum bonus of £1,000.

While lots have benefited from a LISA, we think there’s always been a key issue with a LISA. The government’s high exit penalty.

The government cut the withdrawal charge from 25% to 20%, between 6 March 2020 to 5 April 2021. This was intended to allow people affected by the pandemic to access their money early and only lose the government bonus.

In April this will go back up to 25%.

We believe that charge is too high. And failing to extend the reduction in the recent budget is disappointing when the outlook for the economy remains so uncertain.

We set up a petition at the end of January urging the Treasury not to put the charge back up. So far over 17,500 people have signed it.

The government has responded to say it has no plans to permanently reduce the charge to 20%.

Sign our petition

Remember, tax rules can change and benefits depend on individual circumstances.

Our view

The need for people to unexpectedly access their savings isn’t going to go away anytime soon. There’s now a real risk that people who have worked hard to save for their first home or for retirement through the LISA will be punished for their efforts if their circumstances change.

While the future is so uncertain, there’s also the danger that it puts people off saving and investing for the long term. Not many people will want to pay a penalty just to access their money if things take a turn for the worse.

The LISA withdrawal charge explained

You can normally withdraw your money free of charge from 12 months after your first contribution if you’re using the money to make an eligible home purchase (worth up to £450,000). Or you can wait until you're 60 and take your money out then.

If you want to take money out before you're 60 and you aren't buying your first home, then this is usually an unlisted withdrawal with a government charge.

In May 2020, the Treasury temporarily cut the LISA withdrawal charge from 25% to 20%. The temporary cut applies to unlisted withdrawals until 5 April 2021 and started from 6 March 2020.

How much would the LISA penalty cost you?

Before this change, if making an unlisted withdrawal, you’d have been charged 25% of the amount withdrawn.

If you’d put £4,000 into your LISA and received the government bonus of £1,000, assuming the value of your investments hadn’t changed, you'd have only got back £3,750.

A 20% charge now means you'd get back the full £4,000 you originally put in, providing the value of your investments hasn’t changed.

The drop means, if you make a withdrawal from your LISA, you’ll lose the government bonus plus any growth on that bonus. But you’ll no longer face an extra penalty on top.

Sign our petition to keep the LISA withdrawal charge at 20%

If you, a friend or a family member want to get on the housing ladder in the future or even try to save more for retirement, please sign our petition.

It's possible they'll have a LISA, or will use one in the future.

As the UK’s largest platform for private investors, we’re always looking for ways to drive better results for savers and investors. That’s why we’ve set up a petition. If you agree, and what to help, please sign our petition.

Sign our petition

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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