When you open a Lifetime ISA there are some rules around how, when and what you can withdraw your money for.
Any withdrawals within the first 12 months of your first payment into a Lifetime ISA will incur a 25% government withdrawal charge, which means you would get back less than you paid in. After that, you can withdraw money to buy your first home, but for any other withdrawals before the age of 60, the government withdrawal charge will apply (unless you are diagnosed with a terminal illness).
How the charge is calculated
The government withdrawal charge only applies to the amount you withdraw. This is charged at 25%.
This means as well as returning the 25% government bonus, you'll also lose some of your own savings and will receive back less than you paid in.
An example of how the government charge is calculated
This example is for a non-house purchase withdrawal before the age of 60 and doesn't include any interest earned.
| Actions |
|
| You open the account with |
£4,000 |
| The government bonus is added |
£1,000 |
| Total for 1st year |
£5,000 |
| You make a chargeable withdrawal |
-£5,000 |
| The government withdrawal charge is applied |
-£1,250 |
| You receive back |
£3,750 |
| You lose this much of your own savings |
-£250 |
Considerations
Before deciding whether to make a chargeable withdrawal from your Lifetime ISA you should be aware that the Lifetime ISA is not a flexible ISA. This means you can't withdraw your money and replace it within the same tax year without affecting your Lifetime ISA allowance.
With this in mind, you will need to consider whether it is better to withdraw only what you need at any one time, rather than close your account fully. This could help you make the most of your 25% government bonus and continue to grow your account balance.
Some examples:
The £4,000 maximum annual deposit allowance will still apply so:
- If you deposit £4,000 and withdraw it, you cannot make another Lifetime ISA deposit until the following tax year
- If you deposit £1,000 and withdraw it, you can only deposit a further £3,000 this tax year
If you close your Lifetime ISA while there is a government bonus pending it will not be paid to you. If you want to ensure any pending government bonus is paid, you must keep at least £1 in your Lifetime ISA until the government bonus has been credited to your account.