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Thousands of Britons facing a cost-of-living crunch have been withdrawing funds from their Lifetime ISA (LISA) accounts and getting hit with significant penalty charges.
According to HM Revenue & Customs (HMRC), a record 77,500 LISA savers were issued over £33 million worth of early withdrawal charges in 2021/22.
Early withdrawal from LISAs attracts a 25 per cent penalty. During the pandemic, the Treasury cut the early withdrawal charge from 25 per cent to 20 per cent to ensure those accessing their LISA, while facing serious hardship, were not unfairly penalised. However, this has now ended.
What are LISAs?
- You can use a LISA to buy your first home or save for later life. You must be 18 or over but under 40 to open one.
- You can put in up to £4,000 each year until you’re 50. You must make your first payment into your ISA before you’re 40.
- The Government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year.
- The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2022/23 tax year.
- You can hold cash or stocks and shares in your Lifetime ISA or have a combination of both.
Although the benefits of leaving LISAs untouched are considerable, they can be accessed in an emergency.
As inflation approached double figures in April, around 9,000 savers decided to accept the penalties to take their money out early.
In total, LISA savers made unauthorised withdrawals worth over £14 million, the highest figures for the year.
If you’re a first-time buyer or think you might be in the future or want to save for retirement, a LISA isn’t a straightforward savings account, and may not be right for everyone.