What is the penalty for withdrawing from a Lifetime ISA?

If you withdraw from a Lifetime ISA for any reason other than buying your first home or after age 60, you pay a 25% withdrawal charge. This means you lose more than just the government bonus — you actually lose some of your own money too. For example, if you paid in £1,000 and received a £250 bonus (total £1,250), a 25% charge on withdrawal would be £312.50, leaving you with just £937.50 — £62.50 less than you paid in.

Can I withdraw from a Lifetime ISA to buy a house?

Yes. You can withdraw from a Lifetime ISA penalty-free to buy your first home, provided the property costs £450,000 or less, you are a first-time buyer, you have had the LISA open for at least 12 months, and you are buying with a mortgage (not cash). The money is paid directly to your conveyancer as part of the house purchase — you cannot withdraw it to your bank account first.

When can I withdraw from a LISA without penalty?

You can withdraw from a Lifetime ISA without penalty in three situations: buying your first home (up to £450,000), after turning 60, or if you are terminally ill (with less than 12 months to live). All other withdrawals incur the 25% charge.

Is the LISA 25% penalty on the whole amount?

Yes. The 25% withdrawal charge applies to the entire withdrawal amount, including both your contributions and the government bonus. Because the bonus was 25% of your contribution but the penalty is 25% of the total (which is larger), you end up losing 6.25% of your own money as well as the entire bonus.

What Happens If You Withdraw from a Lifetime ISA Early?

The Lifetime ISA (LISA) offers a generous 25% government bonus, but withdrawing early for unauthorised reasons means you lose money — not just the bonus, but some of your own savings too.

The 25% Withdrawal Charge Explained

The charge is 25% of the total amount withdrawn, which is more punishing than it first appears.

Step	Amount
You pay in	£1,000
Government bonus (25%)	£250
Total in LISA	£1,250
25% withdrawal charge	–£312.50
You receive	£937.50
Your net loss	£62.50 of your own money + £250 bonus

You lose all of the government bonus plus 6.25% of your own contribution.

Why You Lose Your Own Money

Calculation	Amount
Your contribution	£1,000
25% bonus added	£250
Total	£1,250
25% charge on £1,250	£312.50
£312.50 – £250 (bonus)	£62.50 of your own money lost

The government originally reduced the charge from 25% to 20% during COVID (2020–2021), which made withdrawals penalty-neutral. But the charge reverted to 25%, meaning early withdrawal always costs you.

Larger Examples

Amount paid in	Bonus received	Total in LISA	25% charge	You receive	Your own money lost
£4,000	£1,000	£5,000	£1,250	£3,750	£250
£10,000	£2,500	£12,500	£3,125	£9,375	£625
£20,000	£5,000	£25,000	£6,250	£18,750	£1,250
£40,000	£10,000	£50,000	£12,500	£37,500	£2,500

Note: These examples assume no investment growth or interest. Growth in a Stocks and Shares LISA is also subject to the 25% charge on withdrawal.

When You Can Withdraw Penalty-Free

Reason	Requirements
Buying your first home	Property £450,000 or less, LISA open 12+ months, buying with a mortgage, you are a first-time buyer
Turning 60	Withdraw any amount for any reason after age 60
Terminal illness	Diagnosed with less than 12 months to live
Death	LISA funds paid to estate without penalty

First Home Purchase Rules

Rule	Details
Property price limit	£450,000
LISA open for	At least 12 months
Buyer status	Must be a first-time buyer
Purchase method	Must use a mortgage (not cash purchase)
Payment	Goes to your conveyancer, not to your bank
Joint purchase	Both buyers can use their own LISAs if both are first-time buyers
Withdrawal timing	Allow 30+ days for your LISA provider to release funds

What If the Property Costs More Than £450,000?

Situation	What happens
Property costs £450,001 or more	You cannot use the LISA penalty-free — 25% charge applies on any withdrawal
You thought it would be under £450,000 but price changed	Withdrawal charge applies — plan carefully
You have exchange/completion issues	The LISA funds may be at risk — discuss timing with your conveyancer

The £450,000 limit has not been increased since the LISA launched in 2017, despite significant house price growth. This is an ongoing criticism of the product.

Alternatives to Early Withdrawal

Option	Details
Keep it for retirement	Withdraw penalty-free after 60 — the bonus and growth compound over decades
Save for first home within the rules	Keep going if you plan to buy under £450,000
Transfer to another LISA provider	You can transfer to a different provider without penalty
Stop contributing	You do not have to keep paying in — just leave it until 60
Use other savings first	If you need cash, use non-LISA savings to avoid the penalty

LISA vs Other Options

Feature	Lifetime ISA	Cash ISA	S&S ISA	Help to Buy ISA (closed)
Annual limit	£4,000	£20,000	£20,000	Closed to new applications
Government bonus	25%	None	None	25% (on closure)
Early withdrawal penalty	25% charge	None	None	N/A
First home price limit	£450,000	N/A	N/A	£250,000 (£450,000 London)
Age limit to open	18–39	18+	18+	N/A
Age limit to contribute	Up to 50	No limit	No limit	N/A

Should You Open or Keep a LISA?

Situation	Recommendation
Saving for first home under £450,000	Yes — the 25% bonus is very valuable
Saving for first home that might exceed £450,000	Risky — consider a regular S&S ISA instead
Long-term retirement savings for basic/higher-rate taxpayer	Maybe — compare with pension (which offers tax relief at your marginal rate)
You might need access to the money	No — use a Cash ISA or S&S ISA instead
Already have a LISA and no longer buying a home	Keep it until 60 — do not withdraw and lose money

How to Withdraw for a First Home

Step	What to do
1	Confirm property is £450,000 or less
2	Confirm LISA has been open 12+ months
3	Instruct your LISA provider to release funds to your conveyancer
4	Allow 30+ business days (some providers are faster)
5	Conveyancer receives funds and applies to your purchase
6	Keep your conveyancer informed of timelines

Start the withdrawal process early — LISA withdrawals for property purchases are not instant, and delays can jeopardise your completion date.

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