ISAs UK: Cash, Stocks & Shares, Lifetime, Junior and Transfer RulesWhat Happens If You Withdraw from a Lifetime ISA Early?
LISA early withdrawal penalty, when you can withdraw penalty-free, how the 25% charge works, and alternatives to withdrawing. UK guide.
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.
Read more: See our Isas guide for a complete overview of this topic.
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The charge is 25% of the total amount withdrawn, which is more punishing than it first appears.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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