Lifetime ISA withdrawal charge for property over £450k

feebs2583

I’m buying a house (new build property) and have exchanged contracts so am bound to purchase, with completion date planned in 3 weeks time. A large portion of my deposit was coming from my lifetime ISA account which currently sits around £22k. Despite knowing this for several months, my solicitor has only just informed me that my lifetime ISA cannot be used as the property price is above £450k. This means I’ll have to withdraw it and will suffer the 25% withdrawal fee, meaning I will have to find an additional £5.5k to make up the money I will lose in withdrawal fees. 

For context, the property price is £530k and I am buying it with my partner and will have a 53.5% share of the property which is detailed in all the relevant documentation. Will the withdrawal charge still apply given that my sum of the house only amounts to around £280K? Is there anything I can do to avoid these huge fees?! I am using the account for the purpose it was intended so it seems wrong to be facing such a huge fine  

any help would be much appreciated! 

Caz3121

Doubt there is anything you can do, it is restricted by the property price. You won't qualify for the government's 25% contribution but the amount you have paid in personally will be returned

mebu60

Caz3121 said:

Doubt there is anything you can do, it is restricted by the property price. You won't qualify for the government's 25% contribution but the amount you have paid in personally will be returned

Not sure that is correct. Unless it's been changed the penalty is 25% which means less than the amount you have paid in as the government's 25% contribution is only 20% of the total.

Tucosalamanca

mebu60 said:

Caz3121 said:

Doubt there is anything you can do, it is restricted by the property price. You won't qualify for the government's 25% contribution but the amount you have paid in personally will be returned

Not sure that is correct. Unless it's been changed the penalty is 25% which means less than the amount you have paid in as the government's 25% contribution is only 20% of the total.

That would depend on whether the account has turned a profit or not.

My eldest has a LISA that's performing very well. They could close today, pay the penalty and still be quids in...

Albermarle

Another possibility is to leave the LISA alone for later. It has a dual purpose as a help for first time buyers OR as a way of saving for retirement ( sort of like an alternative to a small pension) . Of course it depends if the £5.5K can be found elsewhere....

saajan_12

Caz3121 said:

Doubt there is anything you can do, it is restricted by the property price. You won't qualify for the government's 25% contribution but the amount you have paid in personally will be returned

Tucosalamanca said:

mebu60 said:

Caz3121 said:

Doubt there is anything you can do, it is restricted by the property price. You won't qualify for the government's 25% contribution but the amount you have paid in personally will be returned

Not sure that is correct. Unless it's been changed the penalty is 25% which means less than the amount you have paid in as the government's 25% contribution is only 20% of the total.

That would depend on whether the account has turned a profit or not.

My eldest has a LISA that's performing very well. They could close today, pay the penalty and still be quids in...

No - you actually lose 6.25% of the final value of your contributions, for the reasons Cas3121 says. The growth on your contribution would have been achieved even in a normal ISA, so that's still 'yours', which you lose 6.25% of as a result of the ISA penalty. 

Example:
Say you deposited the max £4,000. Govenrment bonus is 25% ie £1000. 
Lets say that total £5,000 pot grew by 10% because of some great investments, so its now worth £5,500. 
To withdraw, the penalty is 25% ie £1375, leaving you with £4125. 

If you had instead put that £4k in a general ISA, invested in the same shares ie still growing 10% then it would have become £4,400. 

So you've lost £275 ie 6.25% of what your contributions grew to become. 

If the gain (ie the 10%) was actually smaller hten you could lose money vs what you put in as well. 

Tucosalamanca

I agree, an ISA beats LISA unless looking to buy a house or keep until 60.
It's also possible to make a profit, you don't always get less than you paid in if withdrawing early.

silvercar

Martin Lewis has been campaigning on this exact point for quite a while:

https://blog.moneysavingexpert.com/2024/01/martin-lewis--letter-responding-to-the-chancellor-on-lifetime-is/