Guidance

Lifetime ISA withdrawal charge reduced to 20%

Find out about the temporary reduction in the Lifetime ISA (LISA) withdrawal charge from 6 March 2020 to 5 April 2021

To help investors withdraw funds from their Lifetime ISA (LISA) during the coronavirus (COVID-19) the withdrawal charge has been temporarily reduced from 25% to 20%.

The reduced withdrawal charge applies to all unauthorised withdrawals. This change applies from Friday 6 March 2020 until 11:59pm Monday 5 April 2021. A withdrawal charge does not apply when a withdrawal is made to buy a first home or the investor has a terminal illness.

This means that LISA investors will only lose the government bonus earned on the amount they withdraw.

Statutory Instrument 2020 No. 506 gave effect to the temporary reduction in the withdrawal charge between 6 March 2020 and 5 April 2021 was laid on 14 May 2020. 

How this affects investors

Investors who withdraw £1,000 from their LISA will lose the £250 government bonus earned on their original subscription. The value of their LISA will be reduced by £1,250 and the LISA provider will repay the £250 government bonus back to HMRC. 

There is no limit on how much an investor can withdraw from their LISA. 

Correcting a withdrawal charge made on or after 6 March 2020

LISA managers who have deducted a 25% withdrawal charge will be able to correct this from 24 June 2020, when the LISA digital service will be updated.

They will do this by submitting a new withdrawal charge report to supersede the original one.

The refund should go back into the investor’s LISA if it is open. If the investor closes their account or it has a nil balance the refund can be paid directly to them.

Example – An investor wants to withdraw £1,000 from their LISA on 16 March 2020. A withdrawal charge of £333.33 (25% of £1,333.33) was also deducted from the LISA and paid to HMRC.

The correct withdrawal charge is now reduced to £250 (20% of £1,250). The LISA provider will correct the original withdrawal charge and will receive £83.33 (£333.33 - £250) to be credited back to the investor’s LISA.

What will happen after 5 April 2021

The temporary reduction of the LISA withdrawal charge to 20% will end on 5 April 2021. 

On 6 April 2021, the LISA withdrawal charge will go back to 25% and will apply to all unauthorised withdrawals from a LISA made on or after 6 April 2021. 

What LISA managers can do now

LISA managers could apply the 20% withdrawal charge right away, if their systems allow it.

HMRC’s LISA digital service will be updated on 24 June 2020 for the reduced withdrawal charge.

After the service is updated it will not accept 25% withdrawal charges made between 6 March 2020 and 5 April 2021. LISA managers can:

  • make their superseded withdrawal charge report to HMRC, amending the 25% withdrawal charges made since 6 March 2020
  • report the 20% withdrawal charges when investors make an unauthorised withdrawal

LISA managers can make these reports separately to HMRC, or at the same time that they make their monthly bonus claim for the period 6 June to 5 July 2020.

A single payment will be made to LISA managers that will include the corrected withdrawal charges and the monthly bonus payments that are due.

How to report superseded withdrawal charges to HMRC

From 24 June 2020, LISA managers will be able to make a superseded withdrawal charge report to HMRC.

Find out how to report withdrawal charges.

The following example shows how to report an amended withdrawal charge.

Superseded data submission to HMRC corrected withdrawal charge at 20% HMRC’s record original withdrawal charge at 25% Outcome
Account ID = XXYYZZ13579AABBZZ
Original Transaction ID 0000000005

Claim period start date =
6 April 2020
Claim period end date = 5 May 2020
Withdrawal Amount = 1000.00
Withdrawal Charge Amount = 200.00
Withdrawal Charge Amount YTD = 200.00 – Original YTD figure
Funds deducted during Withdrawal = True
Withdrawal reason = Superseded withdrawal
Automatic Recovery Amount = 200.00
Account ID = XXYYZZ13579AABBZZ
Original Transaction ID 0000000005

Claim period start date = 6 April 2020
Claim period end date = 5 May 2020
Withdrawal Amount = 1000.00
Withdrawal Charge Amount = 250.00
Withdrawal Charge Amount YTD = 250.00 – Original YTD figure
Funds deducted during Withdrawal = True
Withdrawal reason = Regular withdrawal
Automatic Recovery Amount = 250.00
This example will result in one of 2 outcomes.

1. If the first withdrawal charge of £250 has already been collected by HMRC then a payment of £50 will be refunded to the LISA manager.

2. If the first withdrawal charge of £250 has not been collected then HMRC will only collect a debt £200 in a single financial transaction by direct debit.
Published 1 May 2020
Last updated 9 June 2020 + show all updates
  1. We have added information about when the LISA digital service will be updated for the reduced withdrawal charge and how to report a superseded withdrawal charge.

  2. We have added information about what LISA managers can do now and how to report a superseded withdrawal charge.

  3. First published.