I lost £2k in LISA withdrawal charges - any chance to recoup?

hardleyouth

Hi all,

Due to finding myself in crippling debt last year I had to withdraw the circa £8k in my LISA to pay off a number of credit cards.  This obviously resulted in them taking £2000 in LISA 'withdrawal charges' between July and September 2019.  I still have plenty more debt to pay off and I really need any money I can get. 

Given the government's recent decision to remove the penalty for withdrawals due to COVID-19 and the fact that the penalty charge has always been considered quite dubious (where the hell does that money justifiably go!?), is there any chance for me to appeal this and recoup those lost funds minus any government bonus?  If so, how would I appeal this?

At the time I did reach out to both my provider, Hargreaves Lansdown, and HMRC but I was met with blunt, scripted responses on both fronts.

Best,
C 

Sorcerer2018

The government added that money to your LISA for your house, you withdrew it but you didn't buy a house and the government took their share back. The money goes back to the treasury, where it could be used for any number of things. It was the rules of the LISA, did you read the rules before you put money into it?

hardleyouth

They take more than they put in - the charge is 25%, they only provide a 20% bonus.  I'd only be requesting that they repay the amount taken above and beyond the bonus. 

Thrugelmir

The LISA bonus is 25%.  On £8k that's a £2k bonus added.  
On £10k - £2k deducted is indeed 20%. 

eskbanker

hardleyouth said:

Given the government's recent decision to remove the penalty for withdrawals due to COVID-19 and the fact that the penalty charge has always been considered quite dubious (where the hell does that money justifiably go!?), is there any chance for me to appeal this and recoup those lost funds minus any government bonus?

The short answer is no, you can't appeal against a valid and legitimate application of the product terms, which have been clear since launch.  However, perhaps worth noting that the only recent change is to reduce the withdrawal penalty from 25% to 20% so even if you were to make those withdrawals under current conditions you'd still be paying a penalty of £1,600....

And what do you mean by "the fact that the penalty charge has always been considered quite dubious" - considered by whom?

hardleyouth said:

my provider, Hargreaves Lansdown....

Too late for you now but for the benefit of others, given the withdrawal penalties then putting money into a LISA isn't a good idea if there's any chance that you'll need early access to it for non-qualifying reasons, but using an investment version of the product is definitely only recommended for those who are prepared to commit the funds for many years, preferably beyond the age of 60....

epm-84

eskbanker said:

hardleyouth said:

Given the government's recent decision to remove the penalty for withdrawals due to COVID-19 and the fact that the penalty charge has always been considered quite dubious (where the hell does that money justifiably go!?), is there any chance for me to appeal this and recoup those lost funds minus any government bonus?

And what do you mean by "the fact that the penalty charge has always been considered quite dubious" - considered by whom?

hardleyouth said:

my provider, Hargreaves Lansdown....Too late for you now but for the benefit of others, given the withdrawal penalties then putting money into a LISA isn't a good idea if there's any chance that you'll need early access to it for non-qualifying reasons, but using an investment version of the product is definitely only recommended for those who are prepared to commit the funds for many years, preferably beyond the age of 60....

Given this is the MSE forum the fact that Martin Lewis has said he thinks George Osborne made a mistake by making withdrawals subject to a penalty and that he will campaign against it's reintroduction in 2021 is worth remembering.

As for where the money goes my guess is the treasury will get the penalty money and they will deduct it from the cost of the Lifetime ISA scheme in their figures.  Although, of course most people who will be putting money in to a Lifetime ISA will be paying income tax so the bonus is effectively a partial* tax refund on the money you put in to the Lifetime ISA.

* For every £100 you earn above the tax free allowance you pay £20 of tax, so you get £80 (minus NI and other deductions.)  If you pay £80 in to a Lifetime ISA the bonus is £16.

eskbanker

epm-84 said:

eskbanker said:
And what do you mean by "the fact that the penalty charge has always been considered quite dubious" - considered by whom?

Given this is the MSE forum the fact that Martin Lewis has said he thinks George Osborne made a mistake by making withdrawals subject to a penalty and that he will campaign against it's reintroduction in 2021 is worth remembering.

Fair enough - I don't recall seeing his objection but see that it's mentioned at https://www.moneysavingexpert.com/news/2020/05/lifetime-isa-withdrawal-penalty-reduced-due-to-coronavirus/, where he does indeed claim that "The penalty has always been controversial", although as far as I can see he was supportive of the scheme when it was launched.  However, I got the impression from OP's use of 'dubious' that it was being viewed as untenable in some way or of questionable legality, to the extent that there would be some actual basis for challenging it from a sounder footing than 'I don't like it'!

grumiofoundation

epm-84 said:

eskbanker said:

hardleyouth said:

Given the government's recent decision to remove the penalty for withdrawals due to COVID-19 and the fact that the penalty charge has always been considered quite dubious (where the hell does that money justifiably go!?), is there any chance for me to appeal this and recoup those lost funds minus any government bonus?

And what do you mean by "the fact that the penalty charge has always been considered quite dubious" - considered by whom?

hardleyouth said:

my provider, Hargreaves Lansdown....Too late for you now but for the benefit of others, given the withdrawal penalties then putting money into a LISA isn't a good idea if there's any chance that you'll need early access to it for non-qualifying reasons, but using an investment version of the product is definitely only recommended for those who are prepared to commit the funds for many years, preferably beyond the age of 60....

Given this is the MSE forum the fact that Martin Lewis has said he thinks George Osborne made a mistake by making withdrawals subject to a penalty and that he will campaign against it's reintroduction in 2021 is worth remembering.

As for where the money goes my guess is the treasury will get the penalty money and they will deduct it from the cost of the Lifetime ISA scheme in their figures.  Although, of course most people who will be putting money in to a Lifetime ISA will be paying income tax so the bonus is effectively a partial* tax refund on the money you put in to the Lifetime ISA.

* For every £100 you earn above the tax free allowance you pay £20 of tax, so you get £80 (minus NI and other deductions.)  If you pay £80 in to a Lifetime ISA the bonus is £16.

If you pay £80 into a lifetime isa you get £20 bonus. 

hardleyouth

Hi, 

The penalty charge takes more than just the govt bonus away, e.g. you deposit £1k and receiving a 25% bonus making your account total £1,250.  If the government then takes a 25% withdrawal fee (25% of £1250) you lose £312.50, leaving you with £937.5 - less than you deposited. 

It's also worth noting that I had successfully invested the funds so that £8k wasn't just deposits and bonuses, it was growth too.  The government charge therefore took back the bonus and took my own capital and growth.   The bulk of what the charge took is bonus, and I'm fine with them recouping that from me, but they also took a chunk of my own money with it and that's what I want to pursue. 

I recognise that S&S LISAs are a long-term investment product, however people do find themselves in unexpectedly bad financial situations, as I'm sure the people of this forum should be aware.  Sadly, I found myself in that situation and believe me withdrawing my LISA was my last resort after I had exhausted all other options and savings, unfortunately. 

Yes the charge has always been controversial, including with Martin Lewis himself.  It's controversial to fine people for withdrawing savings due to financial difficulty, something the government overly and clearly now acknowledges given the change in policy due to coronavirus - how is current financial difficulty distinct from it happening not during a pandemic? 

grumiofoundation

hardleyouth said:

Hi, 

The penalty charge takes more than just the govt bonus away, e.g. you deposit £1k and receiving a 25% bonus making your account total £1,250.  If the government then takes a 25% withdrawal fee (25% of £1250) you lose £312.50, leaving you with £937.5 - less than you deposited. 

It's also worth noting that I had successfully invested the funds so that £8k wasn't just deposits and bonuses, it was growth too.  The government charge therefore took back the bonus and took my own capital and growth.   The bulk of what the charge took is bonus, and I'm fine with them recouping that from me, but they also took a chunk of my own money with it and that's what I want to pursue. 

I recognise that S&S LISAs are a long-term investment product, however people do find themselves in unexpectedly bad financial situations, as I'm sure the people of this forum should be aware.  Sadly, I found myself in that situation and believe me withdrawing my LISA was my last resort after I had exhausted all other options and savings, unfortunately. 

Yes the charge has always been controversial, including with Martin Lewis himself.  It's controversial to fine people for withdrawing savings due to financial difficulty, something the government overly and clearly now acknowledges given the change in policy due to coronavirus - how is current financial difficulty distinct from it happening not during a pandemic? 

When you signed up for the product you agreed to these terms - that if you withdrew for any purpose other than purchase or retirement the government would take back more than they had paid in bonus. 

You could argue the penalty charge is controversial but the government is giving you the opportunity to get. 25% bonus on your house deposit (I'm sure people thought/think the LISA scheme is in itself controversial). 

Having said that there is obviously no harm in appealing to try and ask for the penalty back (the fact the bonus has been now reduced from 25% to 20% may help?) but I would prepare for this to be unsuccessful. 

maximoose94

No. The rules and terms were clear. The lack of withdrawal charge now is in response to COVID. You withdrew well before this and therefore have to pay the penalty. 
Sucks that you had to do this to get yourself out of a position, but they're the rules unfortunately.