MSE News: Lifetime ISA withdrawal penalty scrapped for 2017/18

Savers using the new Lifetime ISA (LISA) won't be charged the usual 25% penalty for withdrawing money which isn't put towards a first home or retirement in the first year of the scheme, the Government has announced...
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'Lifetime ISA withdrawal penalty scrapped for 2017/18'
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  • Wait, I'm really confused now. If I (say) transfer my H2B ISA into this, then buy a house a month later, I won't get the 25% bonus? Is that right?
  • Ed-1Ed-1 Forumite
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    Kushan wrote: »
    Wait, I'm really confused now. If I (say) transfer my H2B ISA into this, then buy a house a month later, I won't get the 25% bonus? Is that right?

    You need to have held the Lifetime ISA for a year before you can use the bonus. The first bonuses aren't being paid until April 2018.
  • Kim_13Kim_13 Forumite
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    A good move. Gives savers a cooling off period in effect to decide whether the product is right for them. Providers will also be able to explain the charge before it takes effect, as the penalty charge and how it works doesn't seem as well publicised as the 25% bonus thus far.
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  • LinguaLingua Forumite
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    When did they decide to start making the bonus paid monthly? Even in the MSE guide, it says you get paid at the end of each tax year?

    I do like this idea - as mentioned above it gives you a chance to evaluate if the account is working for you.

    Lingua
    Long-Term Goal: £23'000 / £40'000 mortgage downpayment (2020)
  • Ed-1Ed-1 Forumite
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    Lingua wrote: »
    When did they decide to start making the bonus paid monthly? Even in the MSE guide, it says you get paid at the end of each tax year?

    I do like this idea - as mentioned above it gives you a chance to evaluate if the account is working for you.

    Lingua

    In the September 2016 update:

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/553333/Lifetime_ISA_technical_note_September_2016_update.pdf
  • FlobberchopsFlobberchops Forumite
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    Flipping heck. Not even in existence yet and it's already being riddled with caveats and amendments.
    : )
  • bowlhead99bowlhead99 Forumite
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    Flipping heck. Not even in existence yet and it's already being riddled with caveats and amendments.

    It's usual that prior to a new tax product being made available they take account of some feedback.

    As they were not going to apply the bonus until the end of the first tax year anyway, there's no big deal about giving you a penalty free withdrawal before that point. The charging of a penalty to recover the freebie before you actually got anything free would have been a bit silly, so they have clarified what they intend to do. The product isn't available yet and presumably the (re)drafting of the operational rules are not going to cause any real problems to the providers.
  • What if I transfer my H2B ISA into the new LISA and then pay into it every month. Say I do this for a year and slightly beyond taking me past April 2018. I will have a large portion of my savings tied up in this product. I come to look for a mortgage but don't get accepted anywhere. I don't mind loosing the bonus but is it fair that I would have to take a 25% hit on my savings just to get it back because I couldn't use the product to its full extent? Yes I could keep it in for my pension but I'd need the money for a bond and other expenses because I couldn't get a mortgage.
  • Ed-1Ed-1 Forumite
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    Sidewalk8 wrote: »
    What if I transfer my H2B ISA into the new LISA and then pay into it every month. Say I do this for a year and slightly beyond taking me past April 2018. I will have a large portion of my savings tied up in this product. I come to look for a mortgage but don't get accepted anywhere. I don't mind loosing the bonus but is it fair that I would have to take a 25% hit on my savings just to get it back because I couldn't use the product to its full extent? Yes I could keep it in for my pension but I'd need the money for a bond and other expenses because I couldn't get a mortgage.

    The 25% hit recoups the bonus + a little bit so you're not losing that much. But they're the T&Cs of the account. Take it or leave it. You can stick with a Help to Buy ISA if you might not use it for a mortgage but obviously wouldn't be able to transfer the H2B ISA funds to a LISA beyond 17/18 without it counting towards the £4,000 payment limit.
  • LinguaLingua Forumite
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    I know how you feel ... I didn't realise the LISA needed a mortgage (whereas the HtB ISA can be outright purchase), which scuppers any plans I had of using the LISA to help buy my first home.


    Lingua
    Long-Term Goal: £23'000 / £40'000 mortgage downpayment (2020)
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