The Treasury is introducing a temporary suspension of 5% early withdrawal charge for those facing financial difficulty
People whose income has been affected by the Covid-19 pandemic and want to access their Lifetime ISA funds early will not face an additional withdrawal charge thanks to a temporary rule change, the Treasury has announced.
However, savers would still lose the bonus paid in to their LISA by the government.
The move is part of the government’s package of support to help individuals, businesses and the economy during this difficult time.
The Lifetime ISA is intended to help younger people save for their first home or for later life. As with many other long-term saving products, withdrawing funds early or for unintended purposes normally incurs a charge.
But to help people who need to access to their money earlier as a result of the crisis, the charge on unauthorised withdrawals will be temporarily reduced. This means savers will get back all the money they originally put in, subject to any investment losses incurred on stocks and shares Lifetime ISAs.
The Economic Secretary to the Treasury John Glen 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 falling into high cost or unmanageable debt.’
The Lifetime ISA offers a 25% bonus, paid monthly, on up to £4,000 of savings each year. The current charge is 25% of the amount withdrawn. This is to discourage people from using LISA funds, including the generous government bonus, for a purpose other than buying a first home or for later life.
The Treasury will legislate for a temporary reduction in the LISA withdrawal charge to 20% between 6 March 2020 and 5 April 2021. This will mean account holders will only have to pay back any government bonus they have received, but will not pay the additional withdrawal charge of 5%.
The rule change will be backdated to 6 March, so anyone who has withdrawn their money early since that date and paid a 25% charge will have the difference refunded.
The Treasury said that it is important for people to weigh up their options when considering the use of savings at this time; further guidance on managing finances through this crisis can be found on the Money and Pensions Service website.