The government has altered the Lifetime ISA rules to help those adversely affected by the coronavirus (COVID-19) pandemic.
Individuals who wish to access their Lifetime ISA funds early will no longer face an additional withdrawal charge as a result of a temporary rule change.
The Lifetime ISA is available to adults under the age of 40. Individuals are able to contribute up to £4,000 per year and receive a 25% bonus on the contributions from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account and can be withdrawn from age 60 completely tax-free.
Withdrawing funds from a Lifetime ISA early normally incurs a charge. However, to assist those who require access to the money earlier as a result of the pandemic, the charge on unauthorised withdrawals will be temporarily reduced.
The Treasury will legislate for a temporary reduction in the Lifetime ISA withdrawal charge to 20% between 6 March 2020 and 5 April 2021. This will mean account holders will only have to pay back any government bonus they have received, but will not pay the additional withdrawal charge of 5%.
Commenting on the change, John Glen, Economic Secretary to the Treasury, said: ‘We know that some people are experiencing financial difficulties during these unprecedented times and we want to make it as easy as possible for people to access their savings.
‘That’s why we are reducing the withdrawal charge for Lifetime ISAs so people can access their funds to help get them back on their feet.’