Published On: Sat, Dec 21st, 2019

Lifetime ISA warning: HMRC figures show penalties on savings exceed £9million | Personal Finance | Finance

Savers who have a Lifetime ISA can get a 25 percent government bonus added to their savings in this type of account – up to a maximum bonus of £1,000 per year. The maximum amount which can be paid into the account is £4,000 each tax year – up until a person reaches the age of 50.

The website goes on to state that this means that if a person treats their Lifetime ISA as a short-term savings product, it may be that they get less back than they paid in.

Data obtained by the Royal London in a Freedom of Information (FOI) request shows that HM Revenue and Customs (HMRC) have so far charged more than £9million in penalties for withdrawing money out of a Lifetime ISA.

The figures cover the whole of 2018/19 and the first seven months of 2019/20.

The Lifetime ISA started in April 2017 and allows people who are under the age of 40 to deposit up to £4,000 per year towards a house deposit or for spending later in life.

The government adds a top-up of 25 percent of the amount deposited.


However, those who then need to access the money in their LISA for a reason other than a house deposit face a double penalty.

Not only do they have to hand back the government top-up, but they also face an additional penalty charge on any withdrawals.

Steve Webb, Director of Policy at Royal London, has explained how the charge could affect a saver if they opted to withdraw their money for a reason which would leave it subject to the charge.

If someone starts with £80 and puts it into a LISA, the government will top it up to £100, Mr Webb said.

However, if the same saver later changes their mind and choose to withdraw their money back, they may have to pay back not just the £20 top-up but a further £5.

Mr Webb explained that this means that their original £80 has been reduced to £75.

The first withdrawal charges were levied in 2018/19 and a total of £4.35million was paid over to HMRC in that year.

The pace of charges has since increased with a further £4.69million paid in just the first seven months of 2019/20.

In total, people under 40 who have changed their minds about putting money in a LISA have had to hand back a total or more than £9million so far.

Commenting, Steve Webb, Director of Policy at Royal London said: “A Lifetime ISA can be attractive for those who are clear about their plans to put down a deposit on a house and who are confident that they won’t need the money for any other reason.

“But these figures are a stark reminder that things can change.

“People who change their plans after saving in a LISA are finding that not only do they have to pay back the government top-up but they face a penalty charge as well. This leaves them with less money than they started with.

“It is hard to see why the government should fine people whose only ‘crime’ was to put money aside in the hope of buying a home and then see their circumstances change.

“The LISA would be a much [more] attractive product if this penalty charge was abolished.”

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