The withdrawal penalty officially goes back to 25% on 6 April
Following the temporary reduction, the withdrawal charge will revert to the normal 25% level on 6 April. In effect, this higher penalty recoups the bonus plus an additional charge equivalent to 6.25% of the money you put in.
At first glance the fact you’ve had a 25% bonus added and then a 25% penalty would seem to leave you back where you started. Yet unfortunately the maths doesn’t work like that…
Imagine you saved £1,000 by April 2021 and so got a £250 bonus (due in May). You’d have £1,250 total (ignoring interest, for ease). If you withdrew it in June, and closed the account, the 25% penalty would be £312.50. So you’d only get £937.50 back.
Some have called for the lower withdrawal penalty to be made permanent. But responding to a petition asking for that, the Government insisted the 25% withdrawal charge “protects the Lifetime ISA’s status as a long-term savings product”.
To beat the return of the penalty, you actually need to withdraw cash sooner
HM Revenue and Customs has confirmed that, due to a specific rule LISA providers must follow on withdrawals, it’s the date your withdrawal is actually completed – not requested – which determines the penalty you’re charged. So if you need to take money out of your LISA and want to avoid the higher penalty, your withdrawal must be completed before 6 April. Since withdrawals can take several days to process, in practice this means you now have less than two weeks to request one with most providers.
We asked all the cash LISA providers, and some of the top stocks & shares LISA providers, what deadlines they’ve set and have listed these below. If you have a LISA from a different provider, check with it directly about its deadline for withdrawals to ensure you request it in time.