Lifetime ISA exit charge looms as Rishi Sunak is urged to cancel 25 percent penalty | Personal Finance | Finance


As part of its emergency coronavirus response, last year, the Treasury reduced the Lifetime ISA exit charge for 2020/21. The penalty was cut from 25 percent to 20 percent, enabling people to access their money in the account early without facing an additional withdrawal charge.

The temporary rule change meant this charge reduced to 20 percent between March 6, 2020 and April 5, 2021 (inclusive).

It means account holders making withdrawals during this time frame would only need to repay any government bonus received, but they wouldn’t need to pay the additional charge of five percent.

The decision was announced on May 1, 2020, but the rule change was backdated to March 6, meaning anyone who took money out early since that date and paid the 25 percent charge would have the difference refunded.

On April 6, 2021, the exit penalty is due to revert back to 25 percent.


Ahead of the tax year end, investment platform AJ Bell is urging the Chancellor to provide certainty for savers by making the reduction to 20 percent permanent, warning unemployment and serious financial hardship is likely to come if Government support is pared back from April.

Tom Selby, senior analyst at AJ Bell, commented: “The Treasury’s decision to cut the Lifetime ISA exit charge from 25 percent to 20 percent for 2020/21 was pragmatic and designed to ensure those facing serious financial hardship during lockdown could at least get at their savings without being unfairly penalised.

“However, as things stand the exit charge is due to increase back to 25 percent from April this year, meaning anyone under age 60 who wants to access their money for anything other than a first house purchase faces not only paying back the Government bonus they received on the money they paid into their Lifetime ISA but being hit with a penalty on top of that.

“The increase in the exit penalty will likely be happening at the same time as millions of employees are being moved off furlough support and facing huge financial insecurity.

“But a preferable solution would be to make the reduction permanent, meaning the aim of the charge would simply be to return the upfront bonus.”

If a person uses their Lifetime ISA savings to purchase their first home, there are some criteria to meet in order to avoid the exit penalty.

To do so, the following must apply:

  • The property costs £450,000 or less
  • They buy the property at least 12 months after you open the Lifetime ISA
  • They use a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to the conveyancer or solicitor
  • They’re buying with a mortgage.

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