Lifetime ISA early withdrawal charge scrapped for 2017/18 only
Speaking in the House of Commons, the financial secretary to the Treasury said it would make a “small change” to charges on early withdrawals from the Lifetime ISA (LISA) in the first year of its operation, “for the benefit of consumers”.
The Lifetime ISA details so far
The Lifetime ISA (LISA), is set to launch in April 2017 to help young people buy their first home and save for retirement.
It will allow savers to contribute £4,000 each tax year and the government will top it up with 25% – £1,000 each year. See YourMoney.com’s All you need to know about the Lifetime ISA guide for further details of the scheme.
In September, the Treasury published an update on how the LISA will work, including that in the 2017/18 tax year, the bonus will be added at the end of the tax year, while from 2018/19, the bonus will be paid on a monthly basis.
However, a 25% government charge on unauthorised withdrawals from LISA would be applied, except where the saver’s over 60, bought their first property when under the age of 40 or in the event of terminal illness, with less than a year to live.
As a 25% withdrawal charge would apply in the first year of the scheme operation and because in 2017/18 the bonus would be paid at the end of the tax year, consumers would face a charge even before receiving the bonus amount.
The financial secretary to the treasury, Jane Ellison, said: “The 25% government charge on unauthorised withdrawals from the lifetime ISA recoups the government bonus and applies a small additional charge. This is fair as it reflects the long-term nature of the product and ensures that individuals save into it for the intended purposes, protecting government funds and taxpayers’ money.
“However, in 2017-18 only, the bonus will not be paid monthly, as it will be from April 2018 on, but will be paid as an annual bonus at year-end. This could create a difficult case where people face a 25% government charge up to 12 months before they receive the bonus. We have listened to representations on this point, and so, to improve the product for consumers, I can confirm that there will be no government charges in 2017-18.”
She told the House of Commons that if people want to withdraw from their LISA in 2017/18, they must close their account, and there will be no government charge to do so.
In addition, no bonus will be paid on such closed accounts.