The Lifetime ISA withdrawal charge

A Lifetime ISA pays a government bonus of 25% on everything you save into it, up to £4,000 a year, but that bonus comes with a catch. If you take money out for anything other than buying your first home, and you are under 60, the government takes back 25% of the amount you withdraw¹. Because the charge is worked out on the whole withdrawal, including the bonus, it takes back more than the bonus gave you, and you can end up with less than you paid in¹.

The charge does not apply in every case. Withdrawals are charge-free once you turn 60, when you buy a first home that meets the rules, if you are diagnosed with a terminal illness, or when you die². There is also a 12-month rule: even a first-home withdrawal triggers the charge if it happens within 12 months of your first payment into the account³.

This page explains how the charge is calculated, when it applies, how it is collected, and what your options are if you need the money early.

The withdrawal charge: 25% of the amount you take out

The government withdrawal charge is 25% of whatever you withdraw from a Lifetime ISA, whenever the withdrawal is not for one of the permitted purposes¹. The charge applies to the total amount coming out, which includes the government bonus that was added to your savings¹. So if you withdraw £1,000, the charge is £250, and you receive £750 in cash.

The legislation behind this is the Savings (Government Contributions) Act 2016 and the regulations made under it, which set the specified percentage at 25% for withdrawals that are not exempt⁶. HMRC guidance describes any withdrawal that is not the result of a "life event" as subject to the 25% charge².

A worked example from the government's own guidance shows how it bites. An investor who withdraws £1,000 from their Lifetime ISA loses the £250 government bonus earned on their original subscription⁷. The charge is not simply a clawback of the bonus: it is a bigger percentage of your own money than the bonus ever was, which is why an early withdrawal can leave you with less than you paid in.

Providers state the rule in the same terms. Skipton Building Society says withdrawals that do not satisfy the qualifying conditions are subject to a government withdrawal charge of 25% of the amount withdrawn⁸, and Newcastle Building Society says the same about any withdrawal not classed as a lifetime event⁹. HSBC warns that other withdrawals will usually mean a 25% government charge, "so you could get back less than you put in"¹⁰.

The charge takes more than the bonus you were given

The counter-intuitive part of the Lifetime ISA charge is that 25% of the withdrawal is not the same as the 25% bonus. The bonus was 25% of what you paid in. The charge is 25% of what you take out, and what you take out includes the bonus itself. The result is that the charge recovers the bonus, any growth on it, and then some of your own money on top.

The Financial Conduct Authority requires firms to spell this out. Its rulebook states that:

The Treasury Committee report on the Lifetime ISA quantified the effect: a chargeable withdrawal causes LISA holders to lose the government bonuses they received, plus 6.25% of their own contributions⁴. That 6.25% figure is the practical answer to anyone who assumes the charge merely cancels the bonus.

Providers give worked examples. Bath Building Society illustrates a £4,000 deposit plus a £1,000 bonus: a full withdrawal of the £5,000 balance before 60 attracts a £1,250 charge¹². interactive investor gives a smaller version: contribute £2,000, receive a £500 bonus, and a full early withdrawal is charged £625, returning £1,875, which is £125 less than you contributed¹³. The larger the bonus relative to your own money, the more the charge exceeds it.

When you can withdraw without paying the charge

HMRC guidance lists the withdrawals that are not subject to the charge²:

• A withdrawal to buy a first home that meets the scheme rules
• A withdrawal after you reach the age of 60
• A withdrawal following the death of the account holder
• A withdrawal following a diagnosis of terminal illness
• Payments removed from an invalid account
• Management fees paid directly to the ISA manager
• Withdrawals after the manager has been declared in default by the FCA or FSCS
• A withdrawal caused by an act, omission or circumstance not caused by the investor
• Recoupment or repayment of an incorrect government bonus to HMRC

From your 60th birthday you can withdraw any amount, in full or in part, for any purpose, free of charge and free of tax¹⁴. HMRC guidance confirms that once an investor has reached 60, any subsequent growth or interest earned by the Lifetime ISA continues to be tax free².

Terminal illness has a specific legal test. The regulations state that an account investor is considered terminally ill if there is written evidence from a registered medical practitioner that they are expected to live for less than one year¹⁵. In those circumstances you can withdraw all of your funds, including the bonus, with no government charge and regardless of your age¹⁶. HMRC guidance adds that such a withdrawal does not require the Lifetime ISA to be closed, and any subsequent withdrawals will also be charge-free¹⁷.

On death, the Lifetime ISA ends on the date of death and there is no charge to withdraw the funds or assets from the account¹.

Withdrawing within 12 months of your first payment

Even a qualifying first-home withdrawal is charged if it happens too soon. The rule is that the withdrawal must be at least 12 months after the first payment into the Lifetime ISA¹⁶. Any withdrawal within the first 12 months of your first payment triggers the 25% government charge, which means you would get back less than you paid in¹⁸.

Providers apply this consistently. Skipton tells savers that to avoid the 25% charge on a first-home purchase they need to wait at least 12 months from their first payment¹⁹, and Bath Building Society says you can use your Lifetime ISA to buy your first home 12 months after your first payment without paying the charge²⁰.

The Financial Ombudsman Service has dealt with real cases where this caught people out. In one, a saver named Alexis was told she would lose her government bonus because the Lifetime ISA had been open less than 12 months, and a charge was applied on withdrawal²¹. In another, a saver named Sean withdrew money for a house purchase and, because the Lifetime ISA had been opened less than 12 months before, he had to pay a withdrawal charge²².

If the house purchase falls through

Money withdrawn for a first-home purchase must actually be used for that purchase. If the sale falls through, the funds need to go back into the Lifetime ISA. Skipton states that if the money is not returned, the government withdrawal charge of 25% of the amount withdrawn will apply, unless an extension has been agreed¹⁹. Newcastle Building Society says the same: if the purchase does not proceed and the money is not returned, the 25% charge applies⁹.

The mechanics are handled by your conveyancer. The government's model conveyancer declaration, used when Lifetime ISA funds are released for a purchase, states that any funds not repaid into the client's Lifetime ISA will incur a 25% withdrawal charge²³. The same declaration warns that in the absence of a request for an extension, the withdrawal may be liable to a withdrawal charge²³. The declaration also limits how much can come out: the amount withdrawn must be no more than the purchase price of the residential property²³.

If your purchase is delayed rather than abandoned, ask your provider about an extension before the deadline passes. Extensions are agreed between the provider and HMRC, and they are the one route to keeping the withdrawal charge-free when a sale slips¹⁹.

Is there a limit on how much you can withdraw?

There is no limit on how much an investor can withdraw from a Lifetime ISA⁷. You can take the whole balance at once, make a series of withdrawals, or take nothing at all. For a first-home purchase, you can withdraw up to 100% of your balance, including the government bonus, up to the value of the deposit, with no minimum amount¹⁶.

Two related rules are worth knowing. First, withdrawing money does not increase the amount you can pay in during that tax year: the £4,000 annual limit stands regardless of what you take out¹⁶. Second, if you have paid in more than you were allowed, the excess contributions are removed from the account and do not count as a withdrawal, so no charge applies to that correction¹⁶.

The £4,000 Lifetime ISA limit sits inside the wider ISA framework, where Lifetime ISAs face different subscription limits from other ISA types⁵. Our page on the ISA allowance explains how the limits interact.

How much to withdraw to end up with the cash you need

Because the charge is 25% of the withdrawal rather than 25% of what lands in your bank account, you cannot simply take out the amount you need. GOV.UK is explicit: you have to withdraw more than the amount you need, to cover both your needs and the 25% charge¹.

The government's own example: withdrawing £160 means you pay a 25% withdrawal charge of £40 and receive £120 in cash to meet the bill¹.

For larger sums the same arithmetic applies. HMRC guidance gives the example of an investor who needs a net withdrawal of £4,000: the withdrawal must be £5,333.33, and the charge due is £1,333.33². If you are planning a chargeable withdrawal, work backwards from the cash you actually need, or ask your provider to calculate the gross figure for you.

Transferring a Lifetime ISA to another ISA before 60

A transfer is not a way around the charge if it is a transfer to a different type of ISA. GOV.UK states you will pay a 25% charge if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60¹. The government's technical note confirms that transferring funds from a Lifetime ISA to another type of ISA counts as a chargeable withdrawal¹⁶. Newcastle Building Society warns savers they will incur the charge, currently 25%, if they transfer the funds to a different ISA or withdraw before age 60⁹.

The exception is a transfer between Lifetime ISAs. Skipton states you can transfer your Lifetime ISA into another Lifetime ISA without triggering the government withdrawal charge⁸. This is how you move provider to get a better deal while keeping the bonus intact. Transfers between ISA managers must be completed within 30 days of the account holder's request¹⁶, and the government's design document says individuals can transfer within 30 days between providers for this reason²⁴. Our page on transferring a Lifetime ISA to another provider covers the process.

Help to Buy ISAs sit in between. You can transfer money from a Help to Buy ISA into a Lifetime ISA, but transferring the other way, from a Lifetime ISA to a Help to Buy ISA, means paying the 25% withdrawal charge¹. Bath Building Society gives the same warning¹².

How the charge is taken and paid to HMRC

You do not pay the withdrawal charge yourself through a tax return. The provider deducts it. The legislation provides that where there is a plan manager at the time of withdrawal, the plan manager and the investor are jointly and severally liable to HMRC for the amount payable, and the plan manager must deduct the amount from the withdrawal²⁵.

HMRC guidance sets out the mechanics for providers. The manager must notify HMRC of a withdrawal from a Lifetime ISA, and any withdrawal charges due, on the same monthly claim it uses for bonus claims, and must make payment of withdrawal charges to HMRC no later than 28 days after the end of the claim period in which the chargeable withdrawal occurred². HMRC is responsible for the payment and management of bonuses and the collection and management of withdrawal charges²⁵.

On joint liability, HMRC guidance states that when a withdrawal charge is due, both the investor and the manager are jointly and severally liable for the charge due². The manager is liable when it holds enough funds in the investor's account to cover the charge and can legally remove those funds². In practice, the deduction happens before the money reaches you, so the cash you receive is already net of the charge.

If something goes wrong in the process, for example a transfer you believed was charge-free turns out to have triggered the charge, you can complain to your provider and then to the Financial Ombudsman Service. One ombudsman case involved a saver hit with an unexpected withdrawal charge after transferring money between different ISA types²². Our page on complaining about an ISA provider explains the route.

The temporary 20% charge and why it ended

The 25% charge has not been constant. When the Lifetime ISA was first proposed in March 2016, the plan was different: funds withdrawn for other purposes would attract a 5% charge and lose the government bonus²⁶. By September 2016 the design had settled on the 25% charge on the amount withdrawn¹⁶, and the regulations made in 2017 set the specified percentage at 25%⁶.

The one departure since came during the pandemic. On 1 May 2020 the Treasury announced it would reduce the Lifetime ISA withdrawal penalty to 20%, down from 25%²⁷. The reduced charge applied to all unauthorised withdrawals from 6 March 2020 until 11:59pm on 5 April 2021⁷. During that window, investors only lost the government bonus earned on the amount they withdrew, rather than the bonus plus a slice of their own money⁷. On 6 April 2021 the charge returned to 25% and applied to all unauthorised withdrawals from a Lifetime ISA⁷.

The reduction was temporary by design, and official statistics record it as such: a reduced withdrawal charge of 20% was temporarily introduced from 6 March 2021 to 5 April 2022 in the official savings statistics' description of the period⁵. (The government's own guidance dates the 20% window as 6 March 2020 to 5 April 2021⁷; the statistics document describes the later period. ) The Treasury Committee report notes that apart from that temporary reduction, the LISA has remained unchanged since it was launched in 2017⁴.

The charge is not a rare event. The share of Lifetime ISA holders paying it rose from 5% of all holders in 2021-22 to 7% in 2023-24⁴, and £75 million was paid in withdrawal charges in the 2023-24 financial year alone, a 39% increase on the previous year⁴.

Alternatives to an early withdrawal and where to get help

Before taking a charged withdrawal, it is worth checking the routes that avoid the charge. The simplest is patience: you can leave the money in your Lifetime ISA and withdraw it when you are 60 or over, charge-free and tax-free, for any purpose²⁸. NS&I's guidance puts it the same way: leave the money in the account and withdraw at 60 or over²⁸.

If the account is very new, cancellation may be free. Bath Building Society states you can cancel your Lifetime ISA within 30 days of opening it without incurring a government withdrawal charge¹². Our page on cancelling an ISA covers cooling-off rights in detail.

Day-to-day account costs do not trigger the charge. The government's technical note states that fees and charges for managing a Lifetime ISA may be paid directly to the manager from the Lifetime ISA without a government charge¹⁶. The FCA's disclosure rules exclude any fee or charge payable for a personal recommendation, and any charge relating to the qualifying investments held in the Lifetime ISA, from the charge rules²⁹. Note that selling investments to raise cash may still carry the provider's own dealing charges: AJ Bell, for example, states there is no government charge for withdrawing money, but dealing charges may apply if investments must be sold³⁰.

If you need the money for something other than a first home before 60, the honest comparison is between the charge and the alternatives. A Lifetime ISA is not the only tax-free wrapper: Which? notes that a standard ISA allows withdrawals at any time without penalty, whereas the Lifetime ISA charges 25% for withdrawals for something other than retirement or a first home³¹. Our comparisons of a Lifetime ISA or stocks and shares ISA and a Lifetime ISA or workplace pension set out the trade-offs, and the main Lifetime ISA explained page covers the bonus and eligibility rules.

If a charge has already been taken and you believe it was wrong, for example because the withdrawal was for a first home within the rules, or a transfer was mishandled, complain to your provider first and then to the Financial Ombudsman Service, which can look at how the withdrawal was handled²². For free, impartial guidance on saving and on whether a Lifetime ISA suits your circumstances, MoneyHelper, the government-backed money guidance service, is available, as is the ISAs section of this site.