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

Alistair31

Crippling debts but stuffing £8k in a LISA knowing full well you’d suffer if you had to withdraw? 

epm-84

eskbanker said:

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'!

I don't think Martin has been all that supportive of the Lifetime ISA.  He always made it clear that the Help2Buy ISA had advantages over the Lifetime ISA and vice versa and presented the facts in a way which effectively said "I can't tell you which is the best option, you need to decide for yourself based on this information." 

I'd say he's been a lot more supportive of Marcus bank - telling people they had the market leading rate and if you had an account paying peanuts to consider switching.  In that instance he hasn't told us of the disadvantages of Marcus over other providers e.g. no branch network or not being able to have a current account with them (if you want to have both a current account and savings account with the same provider.)

epm-84

grumiofoundation said:

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. 

I was half asleep yesterday and thought it was a 20% bonus, not a 25% bonus, so yes 25% of £80 is £20.

hardleyouth

Alistair31 said:

Crippling debts but stuffing £8k in a LISA knowing full well you’d suffer if you had to withdraw? 

Helpful comment.  I had zero debt and plenty of savings when I opened the LISA.  Guess what?  People's circumstances can change dramatically and unexpectedly. 

hardleyouth

grumiofoundation said:

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. 

Thanks.   Do you know what route I might take to appeal this?  When i had to withdraw before I pleaded with HL to provide me with the relevant govt contact details but they were entirely unhelpful.  I then fished out an e-mail for a savings team at HMRC but I received that boilerplate response, so I'm not really sure where I need to send my appeal? 

eskbanker

epm-84 said:

eskbanker said:

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'!

I don't think Martin has been all that supportive of the Lifetime ISA.  He always made it clear that the Help2Buy ISA had advantages over the Lifetime ISA and vice versa and presented the facts in a way which effectively said "I can't tell you which is the best option, you need to decide for yourself based on this information." 

I think you've perhaps misunderstood the point I was making, by separating that comment from its context - I wasn't claiming that he's a massive advocate of the scheme or that he's promoted it to the exclusion of others!  I was simply following up on the assertion that the withdrawal penalty has always been controversial and (admittedly from a fairly cursory search) haven't been able to find him stoking any controversy other than recently - early entries within https://blog.moneysavingexpert.com/tag/lifetime-isa/, for example, make passing reference to the penalty but without claiming it to be iniquitous and unfair, as would be expected in such opinion pieces if that's what he thought all along.

hardleyouth said:

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? 

As above, I haven't seen much evidence of long-running controversy, but there's probably not a great deal of mileage in pursuing that line of discussion, other than to observe that the government choosing to relax the rules (while making huge rafts of other pandemic-related financial concessions) doesn't necessarily signify acceptance of fault as such.  Obviously people would prefer that there weren't such charges, but they're far from unique - fixed-term cash ISAs generally impose withdrawal penalties for early access, which can result in the saver getting back less than was deposited, but I don't see anyone rushing to the barricades to protest about that?  There are exit fees associated with other products too....

masonic

There were certainly some commentators who claimed the penalty was unfair from the outset, while others saw the product as unfair because many of those who could derive the most benefit from it were already affluent enough not to need help from taxpayers who were perhaps less fortunate, while still others saw the product as controversial because it may be poorly understood and used in place of a pension where a pension would be the more suitable product for the individual. My recollection is that Martin Lewis fell predominantly into the last camp. The trouble with making arguments on the basis of fairness is that laws do not have to be fair, it is a matter of opinion what is fair, and society encompasses a range of opinions on the subject.

As for an explanation as to why the Government felt the current financial difficulty was distinct from other reasons people might have to make a withdrawal from their LISA and suffer the full 25% penalty, one possible explanation is that the hardships many people are now facing are of the Government's making, and a necessary sacrifice in the efforts to manage the public health crisis.

hardleyouth

hardleyouth said:

grumiofoundation said:

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. 

Thanks.   Do you know what route I might take to appeal this?  When i had to withdraw before I pleaded with HL to provide me with the relevant govt contact details but they were entirely unhelpful.  I then fished out an e-mail for a savings team at HMRC but I received that boilerplate response, so I'm not really sure where I need to send my appeal? 

Sorry to dig this back up, but does anyone know where or how I might appeal for this?  Is HMRC my best bet and if so does anyone know what team? 

Thrugelmir

There's nothing to appeal as the rules haven't been changed retrospectively. HMRC simply implement the law. They don't have arbitrary discretion to grant appeals on an individual basis. The ship has well and truly sailed, 

eskbanker

hardleyouth said:

Sorry to dig this back up, but does anyone know where or how I might appeal for this?  Is HMRC my best bet and if so does anyone know what team? 

Perhaps blunter than you're hoping for but have you come any closer to identifying anything remotely resembling credible grounds for such an appeal?  An opinion that the scheme itself is flawed and unfair, even if shared by one or more commentators, is hardly enough to progress with....