Find information on calculating withdrawal charges as a Lifetime ISA manager.
When investors can withdraw funds
Investors can access their Lifetime ISA (LISA) funds at any time subject to the accounts terms and conditions set by their ISA manager.
It is your responsibility as a Lifetime ISA manager to calculate and deduct the correct withdrawal charge from funds withdrawn from a Lifetime ISA. You can ask HMRC for advice about withdrawal charges when funds are withdrawn from an account.
An investor should be able to withdraw their Lifetime ISA savings and investments within 30 days of an instruction to their ISA manager. These rules do not apply to withdrawals for a first time residential purchase.
Find out more about managing withdrawals from an ISA.
Calculating withdrawal charges
Any amount withdrawn from a Lifetime ISA that is not the result of a life event is subject to a 25% withdrawal charge. You should deduct this from the funds withdrawn by the investor.
For example, if the amount withdrawn for a house purchase but not returned to the Lifetime ISA is £4,000, the withdrawal charge is one third of the total amount withdrawn. The withdrawal charge due will be £1,333.33. This is 25% of £5,333.33.
Making charge-free withdrawals
Withdrawals that are not subject to a withdrawal charge include:
- for first time residential purchases
- when an investor has reached the age of 60 - any subsequent growth or interest earned by their Lifetime ISA will continue to be tax free
- the death or terminal illness of the investor
- payments removed from an invalid account
- management fees charged by, and paid directly to an ISA manager in line with its terms and conditions
- when a Lifetime ISA manager is declared in default by either the Financial Conduct Authority (FCA) or the Financial Services Compensation Scheme (FSCS)
- an act, omission or circumstance not caused by an investor
- recoupment and repayment of an incorrect government bonus to HMRC
After making a withdrawal
- notify HMRC of a withdrawal from a Lifetime ISA, and any withdrawal charges that are due to HMRC, on the same monthly claim
- pay the withdrawal charge into a non-ISA account, such as a control account, held by the Lifetime ISA manager until it’s collected by HMRC
- make payment of withdrawal charges to HMRC no later than 28 days after the end of the claim period in which the chargeable withdrawal occurred
A claim period runs from the sixth day of a month to the fifth day of the next calendar month.
When an investor makes a withdrawal but a charge was not applied, and it should have been, HMRC must receive an amount equal to the withdrawal charge.
When a withdrawal charge is due both the investor and you are jointly and severally liable for the charge due.
You are liable when they hold enough funds in an investor’s account to cover the payment of the withdrawal charge due.
You can legally remove these funds from their investor’s account.
You can read more about HMRC’s processing of withdrawal charges.
When an investor appeals a withdrawal charge
An investor can make a written request to you for:
- a statement giving details of the gross amount of the withdrawal
- the amount of charge deducted
- the net amount actually paid
You must provide this statement within 30 days from the day after receiving the written request from the investor.
Where an investor considers that a withdrawal charge has been wrongly made, they can apply to HMRC for a refund within 4 years. This includes:
- after investors notify you that they have a terminal illness
- the transfer of funds between Lifetime ISAs
- where funds are not returned to a Lifetime ISA after the failure of a first time residential purchase
You do not need to support the investor’s application. HMRC will notify the investor directly of its decision.
If an investor’s application is successful, HMRC may instruct the Lifetime ISA manager to:
- reverse a withdrawal charge that they’ve applied
- amend their Lifetime ISA claim for the month
You cannot reverse a withdrawal charge that was wrongly made without an instruction from HMRC.
HMRC can collect charges that remain due but unpaid at the end of the period described above in the same way as tax charged on a formal tax assessment.
When an investor dies or is terminally ill
When an investor dies
When an investor dies, the investor’s estate can receive the government bonus when the Lifetime ISA has been closed.
You can claim a government bonus accrued on payments made into the Lifetime ISA on or before the date of death of the investor. The investor’s estate can then receive the bonus.
Further payments into the Lifetime ISA should not be accepted after the date of the investor’s death.
When a Lifetime ISA investor dies on or after 6 April 2018, the Lifetime ISA can remain open as a continuing account of a deceased investor.
You can claim a government bonus accrued on payments made into the Lifetime ISA on or before the date of death of the investor.
You must withdraw and repay any government bonuses claimed on payments made after the date of death of the investor. This will be charge-free if you were unaware that the investor had died.
You can read more information on the inclusion of a government bonus in the calculation of additional permitted subscription limits.
When an investor is terminally ill
When a Lifetime ISA investor is terminally ill and you have received written evidence from a UK registered medical practitioner that the investor has less than 12 months left to live, any subsequent withdrawals will be charge-free.
A withdrawal in these circumstances does not require a closure of the Lifetime ISA. Subject to the wishes of the investor, you must keep the Lifetime ISA open and available to receive more payments from the investor.
Evidence from a UK registered medical practitioner proving that an investor has a terminal illness applies to the whole period in which the Lifetime ISA remains open, even if this is longer than the 12 month period set out in the written evidence provided by the investor.
When an investor is no longer a UK resident, you must obtain confirmation of terminal illness from a UK registered medical practitioner or an overseas equivalent of a registered medical practitioner.