LISA Withdrawal Charges Explained – Avoid Penalties & Fees (2025 Guide)

A Lifetime ISA (LISA) is a government-backed savings account designed to help first-time buyers and individuals save for retirement. With a generous 25% government bonus on contributions, a LISA can be an excellent way to grow your savings. However, it comes with strict withdrawal rules, and failing to follow them can lead to hefty penalties.

Understanding LISA withdrawal charges is crucial if you plan to access your funds early. Many savers are caught off guard by the LISA penalty, losing part of their savings due to early withdrawal fees. This guide explores how these charges work, when they apply, and how you can avoid them.

What Are the Withdrawal Charges for a Lifetime ISA?

A Lifetime ISA (LISA) offers a 25% government bonus to help individuals save for their first home or retirement. However, withdrawing funds outside the permitted conditions incurs a 25% withdrawal charge, which effectively results in a financial loss. This charge is applied to the total withdrawal amount (including the bonus), meaning you could end up withdrawing less than you originally contributed.

How Much Is the LISA Early Withdrawal Fee?

If you withdraw money for an unauthorised reason, you’ll face a 25% penalty. Many savers assume that this only removes the government bonus, but in reality, it also takes a portion of your personal contributions.

For example:

• You deposit £4,000 into your LISA.
• The government adds a £1,000 bonus (25%).
• Your total balance is now £5,000.
• If you withdraw early, a 25% penalty applies to the full £5,000:
  • £5,000 × 25% = £1,250 penalty
  • You receive only £3,750, meaning you lose £250 of your own money.

This LISA penalty discourages premature withdrawals and ensures the scheme remains focused on long-term financial goals.

When Does the Government Apply LISA Withdrawal Charges?

The Lifetime ISA early withdrawal fee applies if you take money out before age 60 and do not use it for a first-time property purchase. The only situations where withdrawals are penalty-free are:

1. Buying a first home (up to £450,000).
2. Turning 60 years old and using the funds for retirement.
3. Being diagnosed with a terminal illness (life expectancy of less than 12 months).

In any other case, withdrawing from a Lifetime ISA early results in a significant loss of savings.

Can I Use LISA Funds Before Retirement?

Yes, but only under specific conditions. The government LISA withdrawal policy allows penalty-free withdrawals in three cases:

1. Buying your first home – You can use your Lifetime ISA (LISA) savings to buy a residential property worth up to £450,000 in the UK. The property purchase must meet the LISA rules, such as buying through a conveyancer or solicitor and using a repayment mortgage.
2. At age 60 or later – If you keep your funds in a LISA until at least age 60, you can withdraw everything without paying any penalty. This makes LISAs a useful long-term retirement savings option.
3. If you’re terminally ill – If you have less than 12 months to live, you can access your LISA savings without incurring any withdrawal charges. Medical evidence will be required.

Can I Withdraw Money from My LISA Without a Fee?

If your withdrawal does not meet these conditions, you’ll face the LISA withdrawal penalty. However, you can take steps to avoid penalties, such as:

• Waiting until age 60 to withdraw funds.
• Using the funds for an eligible home purchase to bypass charges.
• Exploring ISA transfers (some providers allow penalty-free transfers to other ISA types).

Planning ahead ensures you maximise your savings and avoid unnecessary LISA charges.

LISA vs. Help to Buy ISA Withdrawal Fees: Which is Better?

When comparing LISA vs. Help to Buy ISA withdrawal fees, the differences are significant:

Which ISA is More Cost-Effective?

A Lifetime ISA (LISA) offers a higher bonus potential, with up to £1,000 per year in government contributions. However, it comes with strict withdrawal rules, including a 25% penalty for unauthorised withdrawals.

On the other hand, a Help to Buy ISA provides greater flexibility, as you can withdraw savings without penalties, but it has a lower savings cap and a maximum bonus of £3,000.

If you plan to save long-term and meet the criteria, a LISA offers better growth potential.

Lifetime ISA vs. Pension Withdrawal Rules: A Fair Comparison

How to Calculate LISA Withdrawal Charges?

LISA Withdrawal Formula

• If you withdraw X amount, the penalty is:
• Withdrawal Charge = X × 25%
• Example: Withdrawing £10,000 results in a penalty of £2,500, leaving you with £7,500.

Is There a Way to Avoid LISA Withdrawal Charges?

Yes! The best ways to avoid LISA withdrawal charges include:

• Using funds for a first-time home purchase.
• Waiting until age 60.
• Checking if you qualify for a LISA withdrawal exemption (terminal illness).

Best LISA Provider with Low Withdrawal Penalties

Choosing the right Lifetime ISA (LISA) provider is crucial, especially if you’re concerned about withdrawal penalties and accessibility. While the 25% government penalty applies universally to all LISAs if you withdraw early for an unauthorised reason, some providers offer better terms, investment options, and flexibility.

Here are some of the best LISA providers known for their competitive offerings:

• Moneybox – A user-friendly app-based LISA provider, Moneybox offers both Cash and Stocks & Shares LISAs, with competitive interest rates and easy access to savings insights.
• Skipton Building Society – As one of the first providers to offer LISAs, Skipton is a reliable choice for Cash LISAs, featuring decent interest rates and a straightforward application process.
• AJ Bell – Ideal for those looking for a Stocks and Shares LISA, AJ Bell provides varied investment options, making it a solid choice for long-term savers.

When selecting a provider, consider interest rates, investment flexibility, and ease of withdrawals to make the most of your LISA.

What Happens If I Take Money Out of My Lifetime ISA Early?

• You lose part of your own savings due to the 25% penalty.
• It could impact first-time buyer plans.
• There are no tax penalties, but you’ll lose the government bonus.

LISA vs. Stocks and Shares ISA Penalties: Key Differences

A Stocks and Shares ISA offers greater flexibility but lacks the government bonus of a LISA.

LISA Account Withdrawal Process: Step-by-Step Guide

If you need to withdraw money from your Lifetime ISA (LISA), whether for a first-time home purchase, retirement at age 60, or an early withdrawal (with a penalty), you must follow the correct process. Each LISA provider may have slightly different procedures, but the general steps are as follows:

1. Contact Your LISA Provider

Reach out to your LISA provider’s customer service team to initiate the withdrawal process. Many providers allow you to request withdrawals through online banking, mobile apps, or phone support.

2. Request a Withdrawal Form

Most LISA providers require you to complete a withdrawal request form. This form will ask for details such as the reason for withdrawal and how much you want to withdraw.

3. Specify the Reason for Withdrawal

You must clearly state the purpose of your withdrawal. If withdrawing for a first-time home purchase, your solicitor or conveyancer must provide supporting documentation. If it’s an early withdrawal, you must acknowledge the 25% penalty.

4. Submit Necessary Documents

Depending on the withdrawal type, you may need to provide:

• Proof of property purchase (if buying a home).
• Medical documentation (if withdrawing due to terminal illness).
• Identification and bank details (for standard withdrawals).

5. Wait for Processing

Once submitted, LISA withdrawals typically take 5 to 10 working days to process. Some providers may take longer, especially for property-related withdrawals.

Does Withdrawing from a Lifetime ISA Affect My Tax Status?

Withdrawing from a Lifetime ISA does not have any direct tax consequences.

• It does not count as taxable income, meaning it won’t push you into a higher tax bracket.
• It does not impact your annual ISA allowance, so you can still contribute to other Cash ISA or Stocks & Shares ISAs.
• However, if you withdraw early, you lose the government’s 25% bonus, reducing your savings.

While there are no direct tax penalties, it’s still best to avoid unnecessary withdrawals to protect your long-term financial goals.

Comparing Lifetime ISA and Savings Account Withdrawal Rules

Conclusion

Understanding LISA withdrawal rules can help you avoid unnecessary penalties. Always consider whether early withdrawal is necessary and explore ways to maximise your savings. Whether using a LISA for a first-time home purchase or retirement, planning wisely ensures you benefit fully.