Lifetime ISA: pressure grows to reform the early withdrawal penalty
Consumer groups and the Treasury Committee continue to call for reform of the 25% LISA withdrawal charge, which can leave savers worse off than they put in.
By Money Guide editorial team
Published:
Pressure continues to build for reform of the Lifetime ISA's 25% early withdrawal charge, which can leave savers worse off than the amount they contributed if they withdraw outside the permitted circumstances (first home up to £450,000 or after age 60).
The charge works by clawing back the 25% government bonus plus a small additional penalty. Critics — including the Treasury Committee — have called for the penalty to be reduced to a flat 20%, which would simply reverse the bonus without imposing an additional loss.
The £450,000 property price cap, unchanged since the LISA's launch in 2017, has also been criticised as out of step with house price inflation. Buyers in higher-priced areas have been left unable to use their LISA on a first home purchase.
Within the rules, the LISA remains the highest-return savings vehicle most under-40s can access for a first-home deposit: an immediate 25% top-up on contributions up to £4,000 a year, with the bonus paid monthly.
Any reforms would require legislation; nothing is currently scheduled.