Lifetime ISA withdrawal

jeddon97

I have contributed £16k into a LISA historically (bonus takes this up to £20k). I bought a house 2 years ago which exeeded the value allowed to use a LISA, so I left the amount in my LISA alone as at that time there was talk of reducing the 25% penalty to 20%.

Fast forward two years and that is now the case, but it sounds like the qualifying event is only on houses bought > £450k from todays date? Is my understanding correct, or do I have right to be hopeful that I could extract the £20k @ 20% and therefore get all of my deposited savings back?

eskbanker

In recognition that some Lifetime ISA holders may wish to purchase a property above the £450,000 property price cap, the government will from 29 October 2026 allow Lifetime ISA funds to be withdrawn for such purchases which otherwise meet the qualifying rules, with a reduced withdrawal charge of 20%, ensuring the value of individual contributions is protected if the value of the property is above the price cap

Yes, as you fear, the wording in the budget document seems clear, i.e. the reduced 20% penalty only applies to withdrawals for otherwise qualifying purchases, so if you've already bought your first property two years ago then you can't benefit from this.

Presumably your £16K contributions will now exceed £20K by enough of a margin (after interest or growth) to counteract the penalty anyway, i.e. you ought to clear more than £16K?

If you're going to leave the money in the LISA, it'll be better to get it invested, for better long-term growth prospects until you can access it penalty-free after 60…

masonic

I still see the LISA as a valuable part of saving for retirement (using a S&S LISA invested appropriately). It is not taxable on the way out, so complements a private pension where tax is deferred.

El_Torro

For 20% tax payers a LISA is actually more tax efficient than paying into a pension. Doesn't help much if you need the money before you're 60 though of course. £20k is a lot of money not to access for a few decades but if you can keep it as part of your retirement planning rather than removing it now then at least you can avoid the 25% penalty.

As mentioned it's not really worth keeping the money in cash if it's going to sit there for 20 years or more. Better to invest it.

dr_snoopy

Now that the LISA penalty for withdrawing to buy a house over £450k has been removed, is it worth transferring money out of a Help to Buy ISA into a newly opened LISA? The limit on HTB ISA at £250k is prohibitively low in much of the UK and hadn’t been addressed.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82191506#Comment_82191506

The LISA penalty for such purchases hasn't been removed, it's simply been reduced from 25% to 20%, which (ignoring interest or growth) just has the effect of unwinding the bonus, so isn't really any better (or worse) than leaving the money in a HTB ISA, although the latter has less competitive products now and will be terminated in a few years.

Depending on your projected timescales, it may be better to wait for full details of the new first time buyer ISA, but it's not launching until 2029:

https://www.moneysavingexpert.com/savings/first-time-buyer-isa/