Lifetime Individual Savings Account: Reduction of withdrawal charge in response to coronavirus (COVID-19)
Updated 25 March 2021
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Who is likely to be affected
- Lifetime ISA (LISA) investors
- banks, building societies and other financial institutions who manage LISAs
General description of the measure
The measure reduces the charge for unauthorised withdrawals from a LISA during the period 6 March 2020 to 5 April 2021 inclusive from 25% to 20%.
Policy objective
To help people who need to access savings in their LISA during the coronavirus (COVID-19) pandemic period. The change reduces the withdrawal charge so that it does no more than recover the government bonus that has been paid into the account, allowing account holders to access their funds during the coronavirus pandemic while maintaining the long-term nature of the account.
Background to the measure
During the coronavirus pandemic there is an increased likelihood that people may need to rely on any savings they have in order to supplement a reduced income, in place of borrowing or until they receive government support through other measures. Many financial services providers have waived fees and penalties on fixed-term savings products to make it easier for individuals to access savings.
LISA is a tax-advantaged savings product providing tax relief and a government bonus to individuals saving for the purchase of a first home or for later in life. Individuals can save up to £4,000 in each tax year and they are eligible for a government bonus worth 25% of what they save. There is a 25% withdrawal charge if individuals take money out of their LISA and do not use it for its intended purpose. The charge recoups the government bonus and any interest on it, together with a small additional charge to reflect the long-term nature of the account.
We have consulted the ISA industry informally. There is support from those who provide LISAs to allow people experiencing financial hardship during the pandemic to access their savings in line with other savings products. Reducing the charge for unauthorised withdrawals to 20% will continue to recoup the government bonus but the additional charge will be removed.
Detailed proposal
Operative date
The measure will have effect for unauthorised LISA withdrawals during the period 6 March 2020 to 5 April 2021 inclusive.
Current law
The current law for Individual Savings Accounts is in the Individual Savings Account Regulations 1998 (SI 1998/1870) (‘ISA Regulations’), which are made under powers in the Income Tax (Trading and Other Income) Act 2005 and the Taxation of Chargeable Gains Act 1992.
The Schedule to ISA Regulations specifies the withdrawal charge to be applied to unauthorised withdrawals from LISAs. This is set currently at 25%.
Proposed revisions
The Schedule to ISA Regulations will be amended by the Individual Savings Account (Amendment No.3) (Coronavirus) Regulations 2020 to apply the reduced charge of 20% to unauthorised withdrawals made in the period 6 March 2020 to 5 April 2021 inclusive.
Summary of impacts
Exchequer impact (£m)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| – | negligible | – | – | – | – |
This measure is expected to have a negligible Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The measure is expected to have a positive impact on individuals who hold LISAs and who need to withdraw funds from their LISAs during the coronavirus pandemic by reducing the 25% charge on unauthorised LISA withdrawals to 20%. This means that, although savers lose the benefit of the government bonus added to these accounts, there is no additional charge for withdrawing their savings. This is consistent with Help to Buy: ISA, where withdrawn funds do not attract a bonus.
Customer experience is expected to stay broadly the same because it does not change how individuals interact with HMRC.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will have a positive impact on people who invest in LISAs and need to withdraw funds from their LISAs during the coronavirus pandemic. These are likely to be represented across all the groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on around 24 LISA providers. One-off costs include familiarisation with the change in the charge applied to unauthorised withdrawals from LISAs and adjusting systems to take account of these changes. It is not expected that there will be any ongoing costs.
Customer experience is expected to remain broadly the same because this measure does not represent a significant change to the operation of LISAs.
There is expected to be no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
The additional costs for HMRC in implementing this change are anticipated to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information given to HMRC by account providers, HMRC’s compliance work, as well as HMRC and HM Treasury’s discussions with ISA providers and other interested groups.
Further advice
If you have any questions about this change, contact Rushab Shah on Telephone: 03000 512336 or email: savings.audit@hmrc.gov.uk.
Declaration
John Glen MP, the Economic Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.