The Government has confirmed that the penalty for early Lifetime ISA withdrawals has been reduced, in response to the Coronavirus pandemic.
With thousands of individuals on lower incomes as a result, many are needing to access savings to support themselves.
Unfortunately, those with money invested in a Lifetime ISA (LISA) face a penalty for doing so. You must be 18 or over, but under 40 to open a Lifetime ISA.
To help these savers, the Government has announced that the penalty for withdrawing funds early has been cut from 25 per cent, to 20 per cent.
The amendment to the rules is only temporary. Furthermore, the change only applies to those who want to access their money during the current financial year.
Before the change, savers paid a penalty of 25 per cent on unauthorised withdrawals; this excludes using the funds for a deposit on a first house or extracting funds after your 60th birthday.
Now, account holders will only have to pay back the Government bonus (20 per cent) that they would have received and not the additional withdrawal charge of five per cent.
John Glen, Economic Secretary to the Treasury, said: “We know that some people are experiencing financial difficulties during these unprecedented times and we want to make it as easy as possible for people to access their savings, especially if it helps them avoid…unmanageable debt.”
The rule change has been backdated to 6 March 2020; anyone who has withdrawn their money early, since that date, will have the difference refunded.
On 6 April 2021, the LISA withdrawal charge will revert to 25 per cent. This will apply to all unauthorised withdrawals from a LISA made on or after 6 April 2021.
Example:
Investors who withdraw £1,000 from their LISA will lose the £250 (20 per cent) government bonus earned. The value of their LISA will consequently be reduced by £1,250. The LISA provider will repay the £250 government bonus back to HMRC.
How can George Hay help?
At all times, and even more so now, thorough and careful tax planning is vital. Careful planning can help you to ensure that your affairs are handled in a tax-efficient manner. If you’d like to talk to one of our team about effective tax planning, please contact us today or fill in one of our online enquiry forms here.
