Answers · UK 2025/26
What is the Lifetime ISA withdrawal penalty in the UK?
A 25% withdrawal charge applies to any Lifetime ISA withdrawal for a non-qualifying purpose. Because the government adds a 25% bonus on contributions, a 25% charge on the total (contributions plus bonus) means you actually lose more than just the bonus -- you get back less than you put in.
Full answer
The Lifetime ISA (LISA) allows UK residents aged 18 to 39 to save up to £4,000 per year and receive a 25% government bonus (up to £1,000 per year). However, withdrawing for a non-qualifying purpose triggers a 25% withdrawal charge that results in a net loss. The 25% withdrawal charge explained: - The charge is 25% of the total withdrawal amount (not just the bonus). - This is the key trap: the bonus adds 25% to your money, and the penalty takes 25% of the total back. Worked example: - You contribute £4,000. The government adds a 25% bonus: £1,000. Total LISA value: £5,000. - You withdraw £5,000 for a non-qualifying reason. - Penalty: 25% of £5,000 = £1,250. - Amount returned to you: £5,000 - £1,250 = £3,750. - Net loss: you put in £4,000 and got back £3,750. You are down £250 (6.25% of your original contribution). This means the withdrawal penalty is effectively more than the bonus for the original saver. Qualifying withdrawals (no penalty): 1. First home purchase: buying a property worth £450,000 or less, using a conveyancer, and you are a first-time buyer. 2. Age 60 or over: full, penalty-free withdrawal. 3. Terminal illness: diagnosis of terminal illness allowing withdrawal with less than 12 months to live. Temporary penalty reduction (COVID exception -- now ended): - During 2020-2021, the withdrawal charge was temporarily reduced to 20%. This ended in April 2021 -- the full 25% charge applies again. When the LISA is worth using: - First home savers who will purchase under £450,000 benefit substantially from the bonus. - Retirement savers who are confident they will not need to access the money before 60. When to avoid the LISA: - If you think you may need the money before age 60 for non-housing purposes, the penalty makes it more costly than a regular savings account or pension.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.