How does the Lifetime ISA 25% withdrawal penalty work?
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In short: HMRC charges 25% of any unauthorised withdrawal — not just the government bonus. On £5,000 saved (£4,000 plus £1,000 bonus), withdrawing all unauthorised returns £3,750 — £250 less than you originally paid in.
Content updated:
The penalty applies to partial withdrawals too: taking £2,000 from a £5,000 pot costs £500, leaving £1,500.
Authorised withdrawals — first home up to £450,000 after 12 months, age 60+, or terminal illness — have no charge.
Provider-to-provider transfers are not withdrawals and do not trigger the penalty.
See Lifetime ISA withdrawal rules guide for conveyancer process on home purchases.
Primary source: gov.uk/lifetime-isa
Part of our Savings & ISAs
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