This data covers the whole of 2018/19 and the first seven months of 2019/20.
The Lifetime ISA started in April 2017 and allows those aged under 40 to deposit up to £4,000 per year towards a house deposit or pension. The government adds a top-up of 25% of the amount deposited. But 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.
So, for example, if someone starts with £80 and puts it into a LISA, the government will top it up to £100. But if they later change their mind and want their money back they have to pay back not just the £20 top-up but a further £5. This means that their original £80 has been reduced to £75.
The first withdrawal charges were levied in 2018/19 and a total of £4.35m was paid over to HMRC in that year. But the pace of charges has increased with a further £4.69m 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 over £9m 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 attractive product if this penalty charge was abolished’.
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